Save For Christmas With a Sinking Fund

Amanda Garland

And reduce the financial stress & strain associated with Christmas

Christmas is all about the spirit of giving. Unfortunately, all that giving does not come cheap. The average American household spends close to $1000 each year on gifts, decorations, and more.

And for many households, this spending at Christmas time is usually done on credit cards. While this can be useful for earning cashback and rewards, it is also a balancing game. One that not everyone succeeds at.

In a recent survey, over 20% of those surveyed indicated that they had racked up credit card debt that Christmas season with the majority of those hoping they could pay off the debt with their tax return.

Ending up with $1000 in credit card debt because of Christmas might make for a merry Christmas morning, but it will also mean a very unhappy New Year.

Instead of going into debt each holiday season, why not give a sinking fund a try?

What is a Sinking Fund

A sinking fund, simply put, is savings dedicated for a specific purpose. You set a savings goal, and you contribute small amounts each month.

So where a traditional savings account might be earmarked for a multitude of things, i.e. emergency car repairs, a new couch, braces, etc. a sinking fund has one dedicated purpose.

How to Get One Started

As with any plan to save money, before you even consider getting started, evaluate your finances to determine if starting a sinking fund is a logical move right now. If for instance, you are behind on your bills, then your priority would be to pay those off first before starting a savings plan.

Once you have your general finances in order, it's time to look at how to start your Christmas sinking fund.

Consider Opening a Separate Account

A sinking fund can only be used for one goal. Because of this, it might be worth opening a separate banking account just for your Christmas savings. You'll just want to be sure to choose an account without any kind of fees (i.e. maintenance, minimum balance, etc.).

Some smaller banks and credit unions even offer a dedicated Christmas savings account, often with really nice interest rates. Although it's important to note that they usually require you to set this up a year in advance of the next Christmas.

You don't have to open a separate bank account, instead, you can use an app or other method of accounting to separate out your Christmas savings from your regular savings.

You will want to track your Christmas fund in some kind of way, otherwise, your Christmas savings is in danger of bleeding into your regular savings, leaving you with little idea of how much you've actually saved up for Christmas.

Figure Out How Much You Usually Spend on the Holidays

Once you have a dedicated way in which to save, you need to figure out how much you need to save.

To do this, take a look at how much you spent last year at Christmas time. This will give you a good starting point.

Next, you'll want to factor in any key life changes. Did you recently move further away from relatives? If so, you'll need to add in shipping costs, or perhaps some of your relatives won't expect gifts now that you live so far away.

And don't forget about that new job you took with the white elephant gift exchange at the annual Christmas party.

You'll also want to consider any family changes. Perhaps your Uncle Roger recently passed away, or your sister Susan just had a baby girl.

Use this information to help you figure out whether you expect your Christmas costs to go up or down next year.

Set a Goal

Once you have an idea of how much you might need to spend next year at Christmas, it is time to set your actual goal. And when in doubt, always add a little extra padding, because it is better to end the holiday flush with cash instead of digging through the couch for spare change.

Now, how far away are you from next Christmas? If the answer is only a few weeks, well then perhaps you can start a sinking fund for next year's Christmas.

But before you start counting the weeks/months you'll also want to take into account when you do your actual Christmas shopping. If you start in November for instance, you'll want your Christmas sinking fund ready by November instead of December 25th.

Once you have a goal amount, and goal date, then you can begin building your Christmas savings.

Start Saving

The key concept behind a sinking fund is putting small amounts away over time to build up a bigger balance. But that doesn't mean you can't make large contributions as well. Perhaps you want to start your sinking fund using your tax return, that is perfectly okay.

The easiest way to keep yourself accountable for your savings goal is to set up auto transfers. This set it and forget it method, can help ensure you meet your savings goal.

You can also consider breaking up your savings contributions into the smaller chunk available. For instance instead of trying to figure out where you'll come up with $100 each month, break it up into weekly savings contributions of $25 or even daily contributions of $3.33.

And most importantly, don't postpone making savings contributions because Christmas is still so far away, get started as soon as you can to avoid the stress of Christmas expenses sneaking up on you before you're ready.

Example Scenario

Let's say you have a sinking fund goal of $800 and there are 7 months till Christmas. If you open your Christmas sinking fund with zero dollars, then you'll need to contribute a little over $144 a month.

Or you could break it down into smaller chunks like $28.50 a week or $4 a day.

Enjoy Christmas

While I can't promise that starting a sinking fund will make for a stress-free Christmas, it should at least tamp down on your money anxieties. Which will hopefully make for a better Christmas experience.

Just be sure to stick to a Christmas budget to avoid spending more money than you saved.

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A Texan and new mom, writing about things I am most passionate about; personal finance, parenting, and the events that shape Texas.

Dallas, TX

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