Thursday, February 13, 2014

The sinking fund

I never used to be very good at saving money, and through much of my student years I lived at the very edge of my means. At the time I don't think the concept of paying back my student loan had really sunk in, but I didn't take on credit card debts as many other students did, partly thanks to my parents helping me out with rent.

But even though I didn't save anything during these years, I was very aware of the value of having a small cushion in the bank. I vividly remember my astonishment when, at my first full-time job in the first year of full financial independence from my parents, I discovered that one of my colleagues (now a good friend) was living from paycheck to paycheck. She was upset because the salaries were taking an extra day or two to enter the accounts (I think owing to a delay in authorisation somewhere in the chain) and she was worried about paying the rent. I was confused - can't you just pay it from last month's salary, or your savings? But she didn't have any, and a delay of even 24 hours caused her huge stress and worry.

On the narrow boat we used to share with other families, there was a sinking fund. This was a tupperware which everyone paid into when they came onto the boat (so it was directly linked to usage) and this pot paid for any repairs that were needed - ie when the boat is sinking, you have the funds to deal with it.

My boyfriend and I both have sinking funds - in fact we have three, a joint one to cover repairs to the flat or other unexpected joint expenses, like the washing machine gives up the ghost and needs replacing, and one sinking fund each. We have enough that if we both lost our jobs tomorrow, we could live for a year with no income, which gives us a cushion to find other jobs or failing that, sell up and move elsewhere. I think it's definitely a good goal to aim at - a 12-month cushion against whatever may come, to give you time to deal with a crisis, to take stock of where you are and to take action before you find yourself pushed to take on debt or make rushed decisions that will have additional costs further down the line.

This cushion was really not so difficult to build up - I have worked out a budget allocating portions of my monthly income to mortgage payments, bills, food, social/hobbies, travel and savings. I set up a monthly standing order from my current account to my main account, so that the savings account grows almost without me noticing. I have still not perfected the art of sticking to a budget, and every year find I have forgotten something, but at the end of the year I usually find I have added to my sinking fund. (This was not the case last year - there were a number of family health issues and I dented my savings to travel back to the UK several times at short notice. I was grateful to have the sinking fund there to dip into for this unplanned expenditure).
My sister is about to take the step to full financial independence this year. She lives with my mother at the moment and is about to make the leap to renting her own place. I've been rather unpleasantly surprised at the advice she got from my parents on saving money. I suggested trying to save even ten pounds a month, as it all adds up, with interest. My mother agreed - 'then at the end of the year you have enough to buy a new coat!' My father urged her 'not to be like your sister and save so much money'. I doubt she would be able to build up a 12-month cushion any time soon, as living costs are much higher in London than Brussels, but I think my sister will find that life is less stressful if she has a growing sinking fund in the bank, even if it's just one week's rent, and I hope she'll be able to give saving even a small amount a try. I have to say that I think she has been far more sensible with her money, and far more disciplined about sticking to her budget in flat-hunting, than I was a few years ago, so I think she'll be just fine.


  1. Well, that's bizarre. Why would you tell anyone not to save so much money?? If you can save AND live comfortably, surely that's the ideal situation? I'm lucky in that my mum gave me a small (to her, but somewhat significant to me) lump sum out of her retirement money to put into savings, so my 'sinking fund' is coming along rather nicely. Though I tend to look at it more as 'eventual deposit for my own place/retirement money' because I've never yet had an emergency that required money. (Renting is good in this respect, in that I don't have to worry about what happens if the washing machine breaks.)

    1. I do agree, I also find it bizarre. And indeed, the sinking fund is not only for emergencies but also contributing towards downpayments on flats etc.



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