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Sinking Funds

by Jeffrey Kosola on September 1, 2010

Continuing along with the Debt Destroyer, today’s topic is Sinking Funds.

Sinking Funds are a quick and easy way to make budgeting simple. A sinking fund can best be described as a pool of money that is set aside to cover future payments. I use sinking funds as the back bone of my financial system. Watch the video to learn how to set one up quickly and start saving a ton of time each month.

Example: A utilities fund

  • Electric
  • Gas
  • Water
  • Internet/cable
  • Cell phones

Review the last 12 months of payments to each company above. Add the payments up and divide by 12 to get the monthly average for each. Then add up the five payments and divide by the number of paychecks received in a month. The resulting number will be the amount needed to fund all the bills for the month for each paycheck. Add in a 5% fudge factor and you’ll always have enough money to cover the monthly bills. Beware of changes you make to these accounts, they could effect the amount you need. If this happens just make the necessary adjustment.

Tip: Open a separate account for the utilities fund and have the companies draft the monthly payments for the account. This will really put your finances on autopilot.

If you’d like to READ more about Sinking Funds, this is a post I wrote about how to set up a sinking fund.

The next installment of the Debt Destroyer will show how I use ING to handle all the money that flows into and out of a pizza dude’s fingers. Good luck setting up and using sinking funds :-)

Download the video
Download the mp3