Sinking Fund Categories to Help Employees Save

Saving money is way easier than it seems. The problem is that most financially illiterate employees don’t know how to save – and there are so many things to save for in life, from retirement, to a big purchase like a new vehicle, to a really, really rainy day. 

Saving money is way easier than it seems. 

The problem is that most financially illiterate employees don’t know how to save – and there are so many things to save for in life, from retirement, to a big purchase like a new vehicle, to a really, really rainy day. 

Workers can get overwhelmed thinking about how to save – do I put a huge chunk away on a monthly or yearly basis and drain my checking account while I’m at it? Do I throw pennies into a piggy bank and hope that builds up over time? Is there something in between that will give me the best of both worlds?

Understanding one’s finances, budgeting, and saving are a few of the key pillars upon which we can build financial wellness. And understanding and access to easy savings strategy is a simple but hugely impactful thing which businesses can offer to their workforce.

Enter the sinking fund.

What the heck is a sinking fund?

A sinking fund is a temporary savings account with a purpose. Sinking funds can exist over the long or short term, but generally an individual will know exactly what it is they’re saving for, and have a good idea of how much that thing will cost, excepting variables related to inflation, etc.

A sinking fund is a concrete and intentional way to save just a little bit at a time while you’re working towards a larger stated goal. Sinking funds are useful at helping individuals put money away for large but not extraneous expenses such as a car, a down payment on a house, your child’s educational expenses, and more.

Whatever the goal purchase is, it should be specific, and held separately from other objectives. Sinking funds offer a convenient road map towards the object of desire because individuals are contributing towards a defined amount – there will always be an end in sight, and you will be able to measure how long it will take to fill the account to your satisfaction.

For example, an employee might be saving to send their child to summer camp. The 4-week sleepaway camp for which they’re saving costs a total of $1600. If the employee deliberately saves $133 out of every bi-weekly paycheck, they will be able to reach the $1600 goal within 6 months.

A sinking fund is not…

It kind of sounds like any other savings account, doesn’t it? But a sinking fund is unique in the world of savings because it is accruing finances for a definitive goal. This distinguishes it from many other varieties of savings accounts which are less defined and oriented more towards the unknown.

  • A sinking fund is distinct from an emergency savings account because it is for something anticipated and even wanted, while an emergency account serves to prepare us for unexpected expenses.
  • A sinking fund is distinct from a retirement account for similar reasons. Although a retirement account may have a specific amount objective, and we may save for retirement consistently and deliberately as with a sinking fund, living expenses beyond our exit from the workforce are not defined by specific goals we can set.
  • A sinking fund is not a generic savings account for all the purchases you might make in the future – or at least it shouldn’t be. If you’re saving for a car, AND a house, AND a purebred puppy, AND an engagement ring, those things should be separated into individual objectives for greater clarity and planning potential.

5 sinking fund categories to support employee financial wellness

Sinking funds allow employees to support their own financial confidence and wellness by ensuring they have money tucked away for any number of anticipated expenses. As one aspect of your workforce financial literacy program, you can introduce them to some of these common sinking fund categories to help get them on the road to their goals.

  1. Transportation.
    A new vehicle, even a new-to-you vehicle, more often than not represents a significant expense which you likely won’t be able to cover in one pay period. But the cost of new and used vehicles rarely changes, and is varied enough that you can set a budget that works well for your income level and needs and save towards that stated number.

  2. Big events.
    Things like weddings, anniversaries, rites of passage parties for young people involve a myriad of sub-categories – food, decor, venue, etc – but remain a specific and temporary goal for which you can easily engage a sinking fund to help you fill your stated budget.

  3. Educational expenses.
    College funds, for yourself or your child, feel like a daunting expense to tackle. But it’s one that will lessen as we fill the cup little by little over time. This can represent a longer-term sinking fund and it is important to keep tabs on current costs of university attendance so you can adjust your objective accordingly.

  4. Holidays.
    A sinking fund can help us make sure we have enough to cover costs of presents, food, travel, etc. when we’re getting ready for a big family holiday. This also allows us to better enjoy the spirit of the time as we aren’t experiencing as much stress about the bill we’re racking up checking off everything on Santa’s list.

  5. Vacation.
    Your sinking fund doesn’t have to be dedicated to something practical. Part of cultivating financial wellness is giving ourselves the means to play and enjoy ourselves, building mental and physical wellbeing in addition to our savings. Think about where you want to go, do some research, set a budget, and save!

What’s next?

Organizations can benefit from improved employee financial literacy. Financially confident, stable and secure workers are better able to show up to their jobs and give back to the company – especially if that company is actively investing in their wealth and wellness.

Origin takes a holistic approach to financial wellness and allows employees deep insight into their finances so they can budget, plan, and save better – for retirement, college, and a trip to the bahamas.

Sign up for a demo today to learn more.


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