Sinking Funds and Christmas Dinner: The Anticipation of the Known Expense

image; Sasun Bughdaryan on Unsplash

Luck is when preparation meets opportunity. 

The cost for our Christmas meals could totally bust our grocery budget if I didn't make some preparations. A festive Christmas brunch and a full dinner for family are beautiful luxuries that we look forward to all year, but they also come with a distinct price tag. If I waited until December to fund those grocery receipts out of our regular winter cash flow, it would create an immediate, stressful pinch.

Instead, I rely on a simple financial habit that provides immense breathing room: the art of the targeted sinking fund.

Our special Christmas meals are a known expense. It shouldn't come as a surprise to any one that a special meal might cost more than a regular Friday night dinner. So we plan for it. In today's finance terms, saving for a specific future expense by tucking away a small amount each week or month is referred to as a sinking fund.  It turns a massive, looming financial hurdle into a series of tiny steps. You are in effect "sinking" that future potential debt by saving in advance. The term goes back to British public finance in the 18th-century, referring at the time to sinking their national debt. This term has since been co-opted by modern finance gurus.

I thought I'd update you on our progress. Right now, my holiday food fund is growing steadily. As I've been taking out my grocery cash this summer, I've been putting a couple of dollars per week into an envelope marked "Christmas Dinner." I'm now up to $24. At this point, I could stop saving and "do" Christmas Day on that $24. I could probably pull off something for that amount, using a lot of foods that I have in the kitchen at that time to supplement. But I think I'll keep stashing away dollars until late November. I should have about $50 in my Christmas meals sinking fund at that point.

The money for the holiday roast, the special baking ingredients, and the brunch fixings will be already sitting there come December. When the holidays arrive, I can shop with absolute joy and zero guilt because that feast has already been paid for.

The beauty of doing a special holiday meal or two this way is that we won't be spending anything over and above our regular grocery budget. All of the savings are coming directly out of my grocery cash two bucks at a time, instead of one large sudden expense.

When my husband and I were first married, we used an envelope system for all of the bills I could pay in person. My husband was receiving a paycheck every two weeks. When he cashed his check, I divided the money by the expected bills. I included bigger, once-per-year expenses as bills to be paid, setting aside a portion of the expected final bill each pay period. Our Christmases never came with shocking January bills. Semi-annual car insurance was always saved for in advance. The paycheck just before the first of the month wasn't entirely swallowed up by our rent payment. Instead I put aside a portion out of each paycheck to total the complete rent amount. We were paying off student loans in those early years. Careful budgeting allowed us to get them paid in just a few years instead of many.

Today, so many of our bills are paid online, either as a charge to our credit card or a debit from our bank account. It no longer makes sense to use a physical envelope system for most of our bills. We still have a system to save a portion each month toward future expenses. For most categories, it's all on paper now. But for those few categories that I prefer to use cash only, an envelope works really well. 

Because my husband and I are aggressively saving for our future, our budget is still tighter than many in this community. I carefully manage all of our spending. While it may sound constraining, in fact it's actually quite freeing. I know for certain that all of our bills will be paid in full when they arrive. And as we also save for unexpected surprises, a medical bill or needed car repair are just annoyances and not major worries. I rest easy at night knowing that our finances are under control.

Saving for our future expenses one small bit at a time doesn't require complex math or expensive budgeting tools. It simply calls for some honest accounting and anticipation. It's looking at a calendar and understanding that tomorrow always comes, and choosing to meet it with a steady, quiet plan.

Financial peace isn't about random luck; it's about looking down the road and making our preparations.

I would love to hear how you handle those predictable, out-of-the-ordinary expenses in your own household! Do you utilize the sinking fund strategy for the holidays or annual bills, or do you have another favorite way to keep your budget steady?