How do you balance multiple sinking funds?

About four years ago, Breezy and her husband opened a checking account at their local credit union so they could save for car-related payments — insurance, gas, repairs, and the like. They liked how it allowed them to separate these expenses from the rest of their spending. Soon, they established more funds.

Right now, she and her husband have four sinking funds and she is considering adding another. The way they currently have their accounts divided is:

  1. Celebrations (holidays, birthdays, weddings, etc) — checking account with credit union
  2. Car repairs (and eventual car replacement) — checking account with credit union
  3. Medical expenses — HSA account
  4. Home improvement — savings account at a bank.

But managing the different funds is becoming a bit of a nightmare. Sometimes she finds that too much has built up in the car repairs account and there's not enough in the home improvements account, so she often borrows from one account to take care of an expense in the other. In addition, she has a new goal.

“However, now I feel the need for more sinking funds to save up for some larger expenses, such as a vacation or a new car, but I'd rather avoid having five different accounts. I was wondering how other readers might manage this situation. I would like to add a vacation account for a trip that we are planning to take in about two years. But, I'm not sure [about] what is the best way to save up for that expense.

“How can I determine a healthy balance for each area? Is it best to keep the balance in a savings account, checking account, cash, or other?”

When Andrea wrote asking how much to keep in an emergency fund, J.D. Roth's advice was to “do what works for you. There is no one right answer. Examine your situation — your income and your needs — to decide how much you should save.” And in the comments, Dylan also had a good suggestion for how to determine a healthy balance:

“Here is an easy (maybe even fun) way to ‘crash test' your finances. Make a copy of your Quicken, Money, Excel worksheet, or grab a blank check book register and simulate emergencies. Try injuries, illness, job loss, car gets stolen, day care evaporates, part of your house requires repairs, legal fees to mount a defense, whatever you can think of. You may need to do a little research, but this can help give you a sense of what your cash flow needs might actually be so you can plan accordingly.”

As for the best type of account to use, Breezy says they do not use an online bank currently, but they are open to the idea if that's an easier way to manage multiple funds. Once she establishes the “healthy balance” for each fund, she could build funds in an online account and then transfer amounts over to a certificate of deposit (CD) periodically, staggering the terms so they mature at the right time. This suggestion is a little more complex; but for her trouble, she'll probably earn a little better interest over the next two years.

How do you determine how much to save, and how do you manage multiple sinking funds? What type of account should she use to save up for her vacation?

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Tom Paine
Tom Paine
6 years ago

We have probably a dozen sinking funds funds, and managing them is a breeze, thanks to two things: 1) a high interest checking account at our credit union that currently pays 2% on up to $25,000 and 2) an envelopes-based online financial management app called Mvelopes. Mvelopes is based on the old cash envelope budgeting method, but it uses “virtual” envelopes. In addition to setting up envelopes for regular recurring expenses like groceries, utilities, etc., we set up envelopes for long-term savings for just the kinds of things discussed in the article. Since all the “real” cash is sitting in… Read more »

TurnedMyLifeAround
TurnedMyLifeAround
6 years ago
Reply to  Tom Paine

I suggest using one account to create a larger balance and take advantage of higher interest rates some institutions provide for large balances (over $5000). Then simply use a spread sheet with all of your accounts listed in separate columns. You can do it the old fashioned way with paper and pencil if you’d like. Track deposits and split them up accordingly between the accounts. This also makes “borrowing” between accounts a lot simpler if you need to do this. There’s no need to transfer funds between bank accounts. You just add a transaction on your spreadsheet showing the transfer.… Read more »

Sarah
Sarah
6 years ago

I also use mvelopes and love it because you can lump all your cash on hand in one account (e.g. we keep our emergency fund, saving for new car, and other “sinking funds” in the same Money Market Account, but they are clearly divided up into separate categories in mvelopes.) The reason why this program has worked so well for us is that it is linked to our accounts so every debit card transaction, credit card transaction, and check get automatically pulled into this program. Takes just a few minutes to process all of our transactions and see where we… Read more »

Carla
Carla
6 years ago
Reply to  Tom Paine

I will definitely check out Mvelopes since I’m not one to carry a lot of cash for the envelope system. Thanks for the recommendation!

Jeff
Jeff
6 years ago
Reply to  Tom Paine

I was going to mention mvelopes for all of the reasons you stated. the key is that after you get things set up, you no longer spend money from the bank, you spend it from the envelope so it does not matter where the money is actually kept. it has made a huge difference for my wife and I as well.

Sue
Sue
6 years ago

If she’s willing to use an online bank, check out SmartyPig–it’s a service designed to help you save towards goals, so you can designate how much per goal and if you want to direct despot towards them (the money is deposited with BBVA Compass and insured same as any savings account). I use it as my main savings account to help budget out savings goals like vacations and car replacement. They have a better interest rate than many CDs–currently it’s 1%–and you have the option of receiving back discounted gift cards instead of cash when you take the money back… Read more »

Meredith
Meredith
6 years ago
Reply to  Sue

I second SmartyPig. I have used it for a few years now and have about 4 different SmartyPigs – one for emergency fund, one for saving for my kid’s music lessons (semi-annual payments), one for Xmass presents, and one for a “dream vacation” that I estimate will take 3 years to save for. I love how easy it is to setup and once automated does all the work for you. Downside is it is only 1% interest.

Carrie
Carrie
6 years ago

smartypig.com

Jon
Jon
6 years ago

I use virtual sinking funds for college savings for the grandkids, unexpected expenses, and travel. I merely set up “dummy” accounts in Microsoft Money to which I transfer, electronically and automatically, the money on a regular basis. The “real” money just sits in my checking account, but I pretend it’s not there, for day to day spending, but when I need it for the types of expenses it is earmarked towards, I transfer it back to checking when the expense is paid, or pay it out of that virtual account. Since savings accounts dropped to paying effectively zero percent interest,… Read more »

Breezy
Breezy
6 years ago
Reply to  Jon

Thank you for your input, Jon!

Ash
Ash
6 years ago
Reply to  Breezy

I love this idea. Thanks for sharing it.

Adam
Adam
6 years ago
Reply to  Jon

This.

If you want software designed specifically for this, YNAB is the best. Categories are akin to virtual accounts, but all the money just sits in one account (or more, if you really want, YNAB doesn’t care where the money is located, only how it’s allocated)

Breezy
Breezy
6 years ago
Reply to  Adam

Thanks, Adam. I haven’t heard of YNAB before. I’ll have to check it out.

Kingston
Kingston
6 years ago
Reply to  Adam

I heartily second the recommendation for YNAB (You Need a Budget). That budgeting software has been life-changing for me and for others in my family.

Breezy
Breezy
6 years ago
Reply to  Kingston

Thanks for clarifying what the acronym was for! Makes more sense now. 🙂

Alex
Alex
6 years ago
Reply to  Adam

Count me in for YNAB as well. My wife and I started using the software — and the method — over two years ago, and I can’t tell you how much clarity it’s brought to our finances. We used to make a lot of our purchasing decisions solely based on our checking account balance. This became a problem when a large bill like our property taxes came due. We’d wonder where all the money had gone. In YNAB, every dollar is given a job — for both monthly bills and larger, infrequent expenses. You create budget categories and allocate your… Read more »

Wendy
Wendy
6 years ago
Reply to  Adam

Put me into the YNAB camp as well. I’m a fan of Quicken and it does a really really good job of telling me where my historical spending was, but doesn’t do a good job of helping me make sure I have enough cash on hand for future expenses. I ended up opening up a bunch of different bank accounts – many of them at what used to be Orange Savings but is now Capital One 360 – and having money go into each account each month. But I have a constant struggle to get money transferred into the checking… Read more »

El Nerdo
El Nerdo
6 years ago
Reply to  Adam

I went to look at the new (for me) YNAB website and got a headache just reading it, ha ha ha. It used to be free, yes? Looks like a great app but I don’t have the type of brain for it. Giving every dollar a job is too much hassle for me. On the other hand, the Balanced Money Formula is easy enough that I can stick to it without thinking. If I don’t have to think about accounting, then I have time to think about other things, like things that I enjoy, or things that make me money–… Read more »

Carrie
Carrie
6 years ago
Reply to  El Nerdo

It does take some time to set up initially, but since then it has cut down the amount of time I spend thinking about my money by at least 80%. However, you clearly know what works best for you.

Marc Stump
Marc Stump
6 years ago
Reply to  El Nerdo

El Nerdo,
YNAB was never free. The program started out years ago as a spreadsheet you would purchase, then developed into the full-blown program that it is.
Even in its old spreadsheet form YNAB was a decent purchase.

Jen From Boston
Jen From Boston
6 years ago
Reply to  Jon

Yep – That’s what I do, and it makes transferring funds between the virtual much easier.

Marsha
Marsha
6 years ago

I find it easier to keep all these types of savings in one account, and use a spreadsheet to keep track of what amount is set aside for each upcoming expense. This way, I can keep a larger amount in the account (avoiding falling below the minimum balance and earning more interest) and can shift money from one expense to another by editing my spreadsheet.

Anne
Anne
6 years ago
Reply to  Marsha

Yes, all those sums I’m saving for but then using up regularly I just keep in the checking account but keep track of them. A spread sheet is great.

I keep a budget with a pen and paper so I know how much is *in* each of those accounts.

Yes, I realize this dates me.

Monica
Monica
6 years ago

I have many sinking funds. Most are located within my online “Smartypig” savings account, which allows multiple savings goals in the same account (you can easily transfer funds between goals). I have sinking funds for the following: car insurance annual payments, life insurance annual payments, car replacement fund (we budget repairs separately), vacation fund, home improvement fund, allowance funds (free spending money for my husband and I), mattress fund (literally – for a new mattress), and home heating oil fund. Some of the funds (life insurance and home heating oil, for example) are annual payments easily divided into 12 payments… Read more »

bap
bap
6 years ago

I keep all of those (next car, property tax, hse insurance, car insur, vacation, and Christmas spending) in a single money market, using a simple spreadsheet to track how much has accumulated and how much has been spent.

The result is much less paperwork and only one (automatic) transfer from my checking to the money market every month.

E.B.
E.B.
6 years ago

For all funds that we might need to access periodically (i.e. not retirement or college savings) we have one giant savings account. Then in Quicken we maintain as many separate registers as needed for all the different categories. We have separate registers for things like: His “fun money” (money he squirrels away if he doesn’t want to keep it all in his checking account for fear of spending it) Her “fun money” (ditto) Vacation Christmas Actual Savings The confusing part with this system is that our “savings balance” is not all actually savings, so we try not to get too… Read more »

Breezy
Breezy
6 years ago
Reply to  E.B.

Thanks, E.B! We may end up doing a version of this, I just hope I can be meticulous enough to track our expenses on a spreadsheet this way.

Michelle
Michelle
6 years ago

I have a smartypig.com account. It’s an online savings account that’s fdic insured, and allows you to have as many sub accounts for different goals as you want. It’s super easy to use, I make automatic contributions twice a month from my checking account- and the best part is that it offers a 1% return. You can move money between goals really easily and you can even accept contributions from others- like if you were saving for a honeymoon or something and relatives wanted to contribute. It shows up in mint as one savings account, but when you log in… Read more »

TimRiggins
TimRiggins
6 years ago

I put 5% of my gross income to a savings account as a sinking fund. I used to have accounts for all the different funds (travel, gifts, car repairs, insurance, etc.), but I finally figured out that those added up to about 5%, and I’ve left it at that. I put 2% into my emergency fund as a back up. And I do still keep track of the sinking fund on a spreadsheet, but I’m pretty flexible with it.

Jerome
Jerome
6 years ago

I use two accounts. One is a savings account with no limits and one is a bonus account where you get some extra interest if you do not take out money (net over the year). The total of the two accounts is spread across dummy accounts as Jon described above. In my case in a spreadsheet. The money in the savings account is for the more frequent smaller expenditures, the other account is for the larger but more rare expenditures, like a new car. Management of the two accounts is very simple. I save a fixed amount every month on… Read more »

Meghan
Meghan
6 years ago

I use Smartypig as well. I have a lot of funds – condo repair/savings (for a rental), new car, dental, health insurance, vacations, etc. I love it and find it is a great tool.

Bridget
Bridget
6 years ago

We do this in Ynab too. We just keep one account, and then within the software have a number of different sinking funds. It’s nice because you see everything in one place, and it’s kinda fun to see a big bank balance, even though you’ve already allocated those funds. It’s also easy to move money from one fund to another since you’re not actually dealing with more than one account, you’re just moving it in the software. We love YNAB.

FindX
FindX
6 years ago

Like Adam above, I keep all my accounts in YNAB. It works pretty well as a planning tool instead of being a reactive tool. Meaning , I can plan savings better as opposed to analyzing after the fact what I spent in prior months and where I went wrong.

Scooze
Scooze
6 years ago

I know this has been mentioned at GRS before, but the former INGdirect, now Capital One 360 allows for many different accounts, which are very easy to track. There is no fee for the accounts, and all can link directly to your bank for easy funds transfer. I currently have several – they pay a small interest with no minimum balance.

https://home.capitalone360.com/online-checking-account

mike
mike
6 years ago

Never did it, never will. Its too much work and hinders my ability to save. Way easier to budget for your regular expenses, I just use a regular excel spread sheet. Income comes and all of it goes to the savings, I don’t keep anything in the checking until I pay the bills 2x a month, I switch just enough over to cover them with a about $500 as a float in checking. We have monthly allowances build into our budgets for cash spending, etc… It wont’ work if you don’t have a level of financial willpower. You have to… Read more »

Samantha
Samantha
6 years ago

I’m going to chime in with another vote for the online bank Capital One 360 (formerly ING). The way you setup multiple sinking funds is ridiculously easy, and you can instantly and easily transfer funds from one savings bucket to another. No tracking required.

My husband and I have SEVEN (!) sinking funds in addition to our linked checking account and mortgage loan. You can instantly add/remove/rename a fund in the blink of an eye. Use this referral link to get $20 in your first account: https://r.capitalone360.com/Z53MiJni9S

We love them!

Jen
Jen
6 years ago

My husband and I have one joint checking account where all of our income is deposited. We also have a savings account through the same bank and then we each have a personal checking account. All of our accounts are tied to the main checking account. On the first of each month, a set amount is automatically withdrawn from the joint checking into our personal accounts. This is our “discretionary” spending for the month. Additionally, a set amount is automatically withdrawn from our joint account and put into our savings account (the total amount is made up of small amounts… Read more »

Eliza
Eliza
6 years ago

I have a PNC virtual wallet account, which is essentially two checking accounts and a savings account. You can shift money between the two checking accounts as often as you like. I get paid weekly. I have estimated my annual expenses for all items that are not paid weekly. This includes monthly bills, quarterly bills, annual bills and items I am saving for such as Christmas funds or medical expense. I divided this annual total by 52 weeks, and when I get paid, I shift this amount over to the reserve checking account. That leaves me a much smaller sum… Read more »

john
john
6 years ago

Save first, all the rest will follow. Barely even budget any more since we meet our established saving goals in 1 account then pay the bills, plenty of money saved to go around

Justin
Justin
6 years ago

I have about 20 funds setup through my online bank account (I use Ally bank). I have automatic transfers scheduled each month from my checking account at a different institution that address the ongoing expenses of auto insurance, and other known expenses that occur periodically. I also save for travel, downpayments, emergency fund and home improvements in this way. Periodically, I’ll take a look at the balances and do a portfolio rebalance in case one fund seems over or under allocated. I like how this system allows me to have specific savings goals but keeps me from looking at a… Read more »

Rebecca
Rebecca
6 years ago

I have savings accounts for emergency fund and one for the next major home renovation. For all of the smaller goals I keep a line item in our checking software. So for example, we pay our propane bill every June for the year. So in my digital register it says: 6/1/15 Propane memo:100/mo (1200 June) 300 So every month I add 100 to the total amount, then when the bill is due the money is in checking and I just pay it and create the transaction for next year. We have these transactions for HOA dues, Christmas, specific vacations, car… Read more »

George
George
6 years ago

I do it Justin’s way (~20 accounts but at CapitalOne360) with automatic transfers. Here’s why: virtual divisions between the accounts aren’t strong enough (can’t stop a transaction if there’s no money) and they need manual correction for expense categorization all the time, which I find annoying.

It’s all preference, so try out your options and see what helps you reach your goals 🙂

Kamado Jim
Kamado Jim
6 years ago

We have nine sinking funds set up via Capital One 360 and we’ve never had the first problem managing them because those are budgeted just like everything else. Granted, they’re budgeted a bit differently, but they’re budgeted nonetheless.

I have a general idea of what I’ll spend each year on car and home maintenance, presents, quarterly HOA dues etc, so I just divide by the appropriate number of months and get my contribution amount.

I’ve been using this system for 7 or 8 years now and have never had to move money between them.

Cath
Cath
6 years ago

I suggest putting it all in one good account and using You Need A Budget.

LMoot
LMoot
6 years ago

I operate from the starting point of meeting my savings goals first. Anything that I will not be spending out of for a year or more gets lumped in with my “efund”. This includes car replacement, house purchase, capital for investments…as long as I am meeting the yearly/ monthly goals for that account, then every else gets regularly deposited into one sink fund. I keep these funds separated at two different online banks, but I have them linked just in case. I personal don’t like multiple sinking funds because you don’t always know the order of when you will need… Read more »

ACL
ACL
6 years ago

I tried one big savings account with a spreadsheet, but there was too much “borrowing” from one column to another. I needed firmer boundaries so ING & separate accounts it was. I transfer a set amount from my everyday checking account to ING/Capital One & it gets distributed to the various accounts (vacation, insurances, car tags, car repair, house repair, the next appliance failure, etc)…….

zac
zac
6 years ago

I have a spreadsheet that does this pretty well for me. I have most of those items all in one account but they are still kept track of seperately. I basically have an annual budget and these more obscure categories get contributed to each month but are only taken from infrequently. For example my vehicle maintenance is $2000.00 per year. That breaks down to $166.67 per month. That is what is added to this account each month for vehicle Mnt. At the end of each month I log all the expenses in each category and the spreadsheet tells me how… Read more »

El Nerdo
El Nerdo
6 years ago

My credit union allows for unlimited savings accounts. I open & transfer & name & rename as needed. Also comes with its own version of Mint. No need to duplicate effort by creating and maintaining a second tracking system. I love my credit union and I just moved my business account to it. This might be suboptimal for interest rates but it’s optimal for me from the organization/execution point of view. In other words, I’d rather lose $20 a year in potential interest but spare myself the pain of having to pay for accounting software and having to spend time… Read more »

Breezy
Breezy
6 years ago
Reply to  El Nerdo

Thanks for the feedback, El Nerdo! I will have to check to see how many savings accounts I can have open with my credit union. This may be the optimal way for me to save for different goals. I just wasn’t sure if it gets too complicated to track each account.

Sandra
Sandra
6 years ago

Good discussion. The main difference between YNAB and Mvelopes is the latter is an on line app that links to all of your accounts while YNAB is off line and you have to update manually. I have used Mvelopes for about a decade now and it really works for me (and i am not in any way affiliated with them). I divide up money into my envelopes and no longer ever have a problem with periodic expenses. The program is easy to use and support is good. Some glitches occasionally but manageable. Most are related to changing and increasing security… Read more »

Emily @ evolvingPF
Emily @ evolvingPF
6 years ago

We have around 10 sinking funds in independent savings accounts at Ally, and I also track the transactions on a spreadsheet. The good thing when we first started the accounts was that earmarking the money in all these different ways was great motivation to save. That plus my mental block about using any earmarked money ‘off-label’ meant that we accumulated a lot cash, but sliced up a few hundred here, a thousand there. That’s when the accounts kind of turned against us and we ended up over-saving (by over-estimating our various needs), when more optimally we should have just increase… Read more »

Jeff
Jeff
6 years ago

Capital One 360, you can have as many as 26 savings accounts and it takes minutes to open and fund a new one. That way I can’t accidentally spend veterinary funds on home improvement or such.

Keith Brawner
Keith Brawner
6 years ago

This whole thing seems like a bit of a mess really. I use mint.com and rollover budget categories, which emulates the “Mvelopes” system mentioned by poster #1, which emulates the old-school envelopes system by Dave Ramsey and others. This allows me to have effectively ONE account (at the highest interest that I can get, around 1% nowadays), with multiple savings items in it. The basic infrastructure is as follows: Mint (for planning/accounting) Checking account (has a ‘max dollar amount’ of about 4.5 months expenses) Investment account (stocks, bonds, etc.) In Mint, budget for all expected expenses, as an example: $120… Read more »

Breezy
Breezy
6 years ago

Thank you everyone for your feedback! I appreciate the direction and recommendations that you have provided. Now to do some research on Mvelopes. YNAB, Mint, and SmartyPig…

Dianecy
Dianecy
6 years ago

In one hyphenated word: self-discipline. I have a checking account and a savings account and that’s it. Okay, technically, I have two of each because I’m in the process of changing banks, but as soon as I’m done moving all my bill pays, #1 bank accounts are being shut down. If I need to keep track of something, I can always break out a spreadsheet, but I like to keep things simple.

JoeMal
JoeMal
6 years ago

I have a total of five bank accounts – checking, savings, and three specialized savings funds. I have to pay schedules – bi-weekly and semi-monthly. This irregular schedule, combined with any incentive to skip a payment and lump sum to catch up, forces me to make weekly savings withdrawals – regardless of when I get paid. Every week, $40 goes to my Auto fund. That rotating balance ensures I cover my 6-month at once premium, as well as at least my $500 deductible. Also, every week $25 goes into my now named Wedding savings account. I am in two weddings… Read more »

Shannon
Shannon
6 years ago

I simply enter my sinking funds as an item on my check register. This way it subtracts from my account balance. When I enter an expense against it,I reduce it. Each payday when I reconcile my account, I change the entry dates for the item to the current date. Zero based budgeting baby!:)

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