Your household finances
Income Checking account Spending Bills Credit cards Sinking funds Savings
A sinking fund is used to accumulate a goal amount of money over a specified period of time to purchase something in the future. Sinking funds can be short- or long-term. Sinking funds are considered an expense because you are setting current income aside for use in the future thus making the money unavailable to use today.
Sinking funds can be used to save up for the purchase of anything. Examples could include:
Short-term sinking funds are used to buy relatively inexpensive items within a short time frame. Earning interest on the money set aside for a short-term sinking fund is not a concern.
In You Need A Cash Plan, a short-term sinking fund is automatically maintained by the program until the goal amount is reached. The money stays in your checking account.
Long-term sinking funds are for large purchases well into the future (e.g. down payment on a house, sending a child to college). Earning interest or dividends on the money in a long-term sinking fund can significantly contribute to the growth of the sinking fund. The money in a long-term sinking fund is, therefore, set aside in You Need A Cash Plan by transferring the money, via a scheduled or unscheduled pseudo bill payment, from your checking account to an external saving or investment account.