What You Need To Know About a Sinking Fund + 5 Reasons to Have One

Sinking funds can be a gamechanger for individuals and households. It is a valuable tool to add to your financial toolbox for savings.

What Is A Sinking Fund?

A sinking fund allows a company to raise capital with a lower interest rate to bond investors. As such, it improves a company’s creditworthiness.

A Sinking Fund For Your Household

Your family can create a sinking fund, dedicating a savings account for a specific household expense that may be too large to handle without borrowing the money.

Both your sinking fund and emergency fund are safety nets but for different purposes.

Sinking Fund vs. Emergency Fund

Emergency Fund

An emergency fund is for the money you set aside in a savings account for unexpected costs you may face when losing a job, boiler breaks, a medical necessity, or pet surgery.

Sinking Fund

The sinking fund is for saving money for a known purpose you expect to purchase in the future. Typically, your sinking fund is for a specific planned amount.

How To Set Up Your Sinking Fund

Review Your Budget

Before setting up your sinking fund, you should a good grasp of your household’s budget.

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