5 Reasons To Start A Sinking Fund
Over the years, you need money to finance large one-time expenses. But where do you get such money? Saving for these expenses can be a challenging task. Fortunately, a sinking fund allows you to save with monthly flexibility and curbs you during one-time financial difficulties. This post will discuss 5 reasons why you need this fund. Read on!
#1: To Avoid Interest Charges
The greatest reason why you need a sinking fund is to prevent you from borrowing a loan with high-interest charges. Depending on the loan terms, a loan’s interest charges and repayment schedules can be quite a hassle. Typically, you require this loan during a difficult time, and paying this borrowing can be demanding.
However, with a great savings account, you can earn annual returns of up to 2% APY. This is more suitable compared to paying high-interest charges of up to 6% on your credit card. Generally, this saving allows you to use less cash to cover single non-frequent expenses.
#2: To Protect Your Emergency Fund
Without this fund, you will be required to utilize your emergency fund if you need money urgently. Generally, you need to recharge your emergency fund and pay for your typical monthly expenses since you need this money for unforeseeable costs such as medical bills.
Nonetheless, you can easily maneuver high upcoming expenses with a good savings account. This fund allows you to protect your emergency fund, even with small incomes and high monthly expenses.
#3: To Prevent Impulse Purchases
This fund limits costly impulse expenses that you can spend years paying. For instance, you may be tempted to replace your vehicle with an expensive one after driving it for a test. Later, you will come back to your senses when you are required to settle the subsequent repayment.
Fortunately, when you opt for sinking funds, you can easily prevent these impulse purchases. These funds allow you to control your spending easily since you have multiple obligations to fulfill. Additionally, they will help you plan on upcoming purchases, preventing unwanted purchases.
#4: To Earn an Extra Income
Saving money to earn an extra income can be quite fascinating. Although you can hardly predict your basic income, you can easily predict your future expenses. Committing to the sinking funds’ account during good financial times can guard you during difficult times. However, saving for deliberate expenses can be quite intimidating, especially when you have a small monthly income.
#5: To Avoid Settling Debts at Once
At times, you may have loans requiring monthly repayments. Luckily, shifting a portion of your income to sinking funds enables you to pay fewer monthly repayments. This fund allows you to make your debt repayments as you contribute these funds. Further, it enables you to reduce your monthly spending by renegotiating or canceling costly subscriptions. Lastly, you will have a rewarding time while saving your extra income flexibly.
While financing huge one-time expenses can be frustrating, you can easily maneuver with a sinking fund. This fund allows you to save flexibly and provides a sufficient funds for one-time expenses without compromising your emergency fund and your borrowing.