The fear of being trapped, physically, emotionally, relationally, and even metaphorically can be utterly terrifying. Anxiety builds up in your chest, you start to panic, hope that you had is dissipating until it’s evaporated entirely. It’s a circumstance you hope you’re never forced into.

Have you ever experienced your finances causing that same trauma? That backed-into-a-corner hopelessness? It’s always good to be prepared, in any situation life throws at you, and having a cushion of cash to fall back on can be the difference between debt and inconvenience.

Here are some reasons emergency funds and sinking funds are invaluable, necessary, and should be an essential part of your financial life.

Emergency Fund for the Unknown:

We’re no strangers to the shape shifting, unpredictable nature of life, and while change is good in some cases, some unforeseen changes can totally derail everything you thought you knew. Here are some examples of true emergencies where dipping into this fund is warranted.

*Auto Issues

Maybe your car’s transmission is destroyed, or you were involved in an accident. Hopefully everyone is okay, but your totaled car could leave your savings account dry. Without monetary padding, it’s too easy to charge a credit card to get it fixed or take out a loan for a new vehicle altogether.

*Hospital Visits

*AC Goes Out

*Job Loss

*House Fire

*Family Member Passes

 

Below are two examples of situations you might know in advance are on the horizon, but can have unexpected caveats.

*Family Planning

Are you looking to expand your family? Was it a surprise blessing? When you find out the good news, start stock piling money into your savings to prepare for doctor appointments, the big day, or (God forbid) complications. Getting caught with little to no money saved during the whirlwind of bringing a new baby into the world is more stress than is needed.

*Moving

If a move is in your future, put money into savings. Maybe you have a new job opportunity or just want a fresh start, but as soon as you know it’s coming, start adding to your emergency fund. We’ve gone over the expenses of moving, but it’s worth repeating. While the actual move might be planned, it’s not too surprising to encounter major pot holes; fill them with cash from your emergency fund.

As soon as my husband was contacted for an interview with his current employer, we started to set aside some cash. Of course we couldn’t have known how things would iron out, and we are grateful that indeed things played out wonderfully, but knowing that in the case of uprooting we’d have enough to cover the expenses released a lot of pressure.

And if he hadn’t received the job, we knew that the money pile we’d been saving would be put on our debt or used in another way.

Without something to fall back on, it can be terrifying to look ahead to necessary payments and costs associated with moving. Again, it can feel like you’re trapped without hope for a rescue. As soon as you get wind that you could be packing up, save.

 

Honestly, there are too many unplanned or at least unforeseen circumstances to record here, but you get it. Life happens, and you’ll need something to fall back on in those scary moments. Don’t let yourself be forced into loaning someone else’s money because you didn’t properly prepare for such inevitable times as these.

Sinking Funds:

Stuff springs up sometimes, that’s when the emergency fund comes through. But there are other times when you know in advance you’re going to need something. Thankfully you have the opportunity to plan for them. Cue the “sinking fund”.

This set-aside money is used for a very specific reason. You know you’ll need to exchange, upgrade, or buy new in the future so you save to cover the costs.
Here are some examples:

*A New Car
*Wedding Dress
*Kids’ Sports Uniforms
*A Camera
*Braces
*Having a Baby (Planned or Unplanned)
*Vacations
*Homes
*College

Again, this list could get lengthy if I keep going, so I’ll stop there. If you tuck a little money away each month or paycheck, you’ll find that in no time you can purchase whatever you please without borrowing money to do so. Plus, it helps condition our patience muscles.

 

Look for the distinction between the two funds. One is “hands off” unless you truly are in an emergency situation, impeccably called the Emergency Fund. The Sinking Fund, on the other hand, is used purposely for the reason you’ve already delegated. Never use the EF money claiming an emergency when you are just feeling a bit impatient, because you never know when an emergency will befall your home, and it could be when you’ve used it towards a “want”.

It can feel hopeless in a situation out of your control and with no financial means to get you through. I can’t stress enough the importance of having an emergency fund ready and waiting for the times you need it most.

While sinking funds provide the freedom to buy what you want, make sure you can pay for it with your money and not the bank’s. That cash is saved specifically, so enjoy it, just don’t rob yourself of the money you’d use in dire straits.

When are times you’ve had to use your emergency fund or sinking fund? Let me know in the comments!

Cheers!