How to Use Sinking Funds to Avoid Debt and Go on Vacation

Tiana Clewis: Getting into debt is pretty dag-gone easy. You look at something you say, "Ooh, I want it" and do you buy it with someone else's money.

T he problem comes when that someone else, that bank, that credit card company, what I like to call a legal loan shark says, "I want my money back." So you scramble to rearrange your life so you can pay back every single penny that you borrowed and then some.

It can be a really serious problem if you're like the average American family and you say, "Oh, I want it" a few too many times with a few too many companies' money. Then it becomes a pretty massive hole that you have to dig out of.

And the worst part is when you're deep in debt, it's easy to find yourself needing to take out more debt just to make ends meet while you pay back at least some of those companies that you borrowed money from.

But what if you could avoid that entire song and dance in the first place? Or at least avoid making that massive debt hole even bigger.

Oh yeah there is a way to pay back your debt and live a decent life without taking out even more debt. So today I'm going to show you how to avoid taking on more debt by using a really simple, but insanely effective strategy: the sinking fund.

Hey Dreamers, welcome back to my channel, where we break down all things money so it can stop being an obstacle and start being what it is: a tool to help you build the life that you truly find worth living.

Before we start breaking down sinking funds, let me introduce myself to the newbies in the crowd. My name is Tiana B. Clewis and I have dedicated my life to helping women entrepreneurs learn how to grow their income, dump debt and hit those money goals without having to sacrifice all things that are fun.

Believe me, when I say that you actually can launch a brand new business and enjoy your daily life at the same time. You know, like going out to brunch with the girls. I do it and so do my clients.

If you want to join me on this journey, like this video and subscribe to my channel. Then hit the bell to make sure you get notified every time I drop brand new money tips and business strategies each week, that will help you hit every single financial goal that you have on your financial hit list.

Alright, let's start breaking down what the heck a sinking fund is and how in the world it works.

To keep it simple, a sinking fund is money that you save for a very specific purpose. It's almost like an emergency fund, but a lot more fun and with definitely fewer rules.

With an emergency fund, the money is meant to protect your family from something going wrong. It just sits there until something unexpected and totally unpleasant happens. Then you spend the money, rebuild the emergency fund, and you just let it sit there and wait for the next thing to go wrong.

That's not how a sinking fund works. Thank goodness.

You can create a sinking fund for absolutely anything you want. Yes, there are some people who use them for annual bills, like HOA dues or property taxes, which suck.

But unlike emergency funds, you can use a sinking fund for fun as well. My husband and I use sinking funds for Christmas, family vacations, and even to put a down payment on this house.

As a matter of fact, let me list out some of the most common uses for sinking funds based on my research and my time with my clients.

You might do your semi-annual auto insurance. There's Christmas shopping. Back to school season's a big one. Home renovations. Upgrading the car. Putting a down payment on a house. Preparing for prom season... super expensive. Birthday parties and anniversaries. Upgrading your technology because who doesn't want a new phone or new laptop. Family vacations. Spa outings, because we all know those super expensive. Redecorating your office. Launching a business. Going to a high end restaurant and your kid's activities like karate and ballet.

Now I just listed 15 things off the top of my head. Okay, they were off the top of my head when I was writing the script. You know... hey. And I can even think back to the time with my husband used a thinking fund to surprise me by paying off my beloved Mazda.

Yeah. I totally missed that car, but we have way too many kids now.

Anyway, when I say you can use the thinking fund for anything, I literally mean anything. The limits on what you can use a sinking fund for is just bound by your imagination.

Now here's the reason why I say you can use a sinking fund to avoid going into debt, or if you already have some debt, avoid going deeper into that debt.

You see a sinking fund is just a savings tool and savings tools are all about accumulating money over time so you can have cash on hand to do what you want. So if what you want to do is spend $2,000 on Christmas presents, then a Christmas sinking fund would give you that $2,000 to spend. And if you don't have to use debt to make the purchase because you got cash... voila, no debt.

I told you, it's easy.

"But Tiana, if using a sinking fund to set up debt was that easy, why doesn't everyone do it?"

It's because of this little thing called instant gratification. You know, that voice inside of you that says "Why wait when you can get it right now?" And then you counter back with, "But I can't afford it." And then that little voice says, "If you use your credit card, you can get it now and pay for it later."

And there you go, swiping the card to get that pleasure right now when you can simply wait a bit, save the money, pay cash, and never have to worry about that credit card bill.

So instant gratification is really what gets us into debt... most of the time, which means we have to practice the exact opposite of instant gratification if we are going to stay out of debt or at least not make the hole bigger.

When you use sinking funds, you're actually practicing delayed gratification. You tell yourself I'm going to save $3,000 to take my family on a tour of Southern Italy in 12 months. So you do the math, save the $250 a month and 12 months later, you and the family are listening to the Pope in Vatican Square for Sunday mass.

So you could... I mean, sure, you could put that $3,000 on a credit card and have been in Italy next wee, but think about the aftermath. Now you're stuck paying off that $3,000 over the next 12 months with a 20% interest rate, if you're lucky. And so by the time you're done paying off the trip, you've actually paid $3,600 for the exact same trip or even more.

That $600 could have been used for something else... like... I don't know the next trip.

This is why delayed gratification and sinking funds are an important part of your money management game plan. If you can be patient enough to wait, saving up the money bit by bit, ultimately you get all the fun times that you would have had with the debts, but without all those nasty side effects and the horrible aftermath, you know, like paying interest. We don't want that.

So as you've likely figured out, all you need to know to use a sinking fund effectively is how much money you need and when you need it by. Then you just need a savings account to put all the money in, plus a way to track the money that you're saving.

Now, one of the major objections that I get when I talk to clients about sinking funds is that the first part, how much money you need, it's not always super clear.

When you're saving for property taxes, semi-annual insurance payments - you know, the not fun stuff - you know exactly how much you need, because there's at least the bill from the last payment to guide you.

But the question becomes, how do you know to say $3,000 for the Italy trip instead of just $2,000? Or how do you know to save $1,000 for Christmas instead of $1,500? It's not like you know what the event prices are going to be or what your kids are going to ask for for Christmas, right?

Well, how you approach this depends on the situation. Sadly, I can't give you any hard and fast rules here, but there are at least a couple of recommendations that I want you to consider.

So when you're talking about gifts for holidays or special milestones, I recommend setting a budget based on what you're comfortable with financially. That's what we do. So for Christmas, you may say that you can afford to save $150 a month between now and the end of November. So that's a total of $750.

Well, what you do is you then pare down your Christmas list to fit into that $750 budget. There may be other people that you want to add. There may be more expensive gifts that you want to buy, but if they can't fit into that $750 budget that you set for your sinking fund, then that's just what you roll with.

Again, that's what we do for our family and it's been very effective.

I also have a recommendation for vacations. Here I recommend that you just do some research and create a rough estimate of what you're going to need for the trip. Now, I'm not telling you to plan out your entire itinerary - there are some people who like my husband, who likes to go with the flow - but what I do recommend that you do is you look up and see what are some of the outings or excursions potentially going to cost. Maybe you make a list of 10 or 15 that you're interested in.

And so once you have that list, you just add up the number and then you bump it up by like 10% to 15%, just in case there's something that you missed out on. At that point, now that you know how much money that trip is potentially going to cost and how long you have until you decide to go on the trip, you now have some decisions to make.

If you can't afford to actually make those monthly deposits into the sinking fund based on the current budget you have, you can decide to either pare down the actual trip itself. You can decide that you're going to divert money for maybe something else that you're working on with another sinking fund somewhere else.

Or you might actually decide, you know what, this is so important to me... like maybe this trip is to celebrate a 10 year anniversary. It's so important to me that I'm actually going to find a way to make some extra money, to be able to make this deposit and go on this trip. It's up to you, but at least now, because you have that game plan, you can make that strategic decision.

The other primary objection that I get, and the last one I'm going to talk about right here, is how do you track your sinking funds? And that's what I remind my people to be very particular about the budgeting app that you're using.

You see the good budgeting apps, like EveryDollar, they recognize that saving for special events is an important part of money management. So they typically have some sort of built in tracker for saving different types of things. So they may use a different term from sinking funds, like EveryDollar actually says "Fund", but they typically have something built inside that's going to allow you to track how much you're saving for different sorts of endeavors.

Now, if you're not using a budgeting app, which I still recommend, or your current app doesn't have those sorts of savings features, I recommend keeping it really simple.

If you're an Excel person, make a spreadsheet that tracks your savings. You can actually have all your sinking funds with their savings goals on a single page. And then each month you update it with increases and decreases in the balance.

Now if you're not an Excel person, worry not, you can always use pen and paper. In fact, a quick Google search will show tons of printable sinking fund calculators. Some calculators are just like what I described for Excel - you've got your sinking fund, you've got the goal and you're just tracking increases in decreases. But there are some that are designed to be a lot more fun where you have your goal and you kind of color up until you get to that goal.

It's whatever works for you. Look, I recommend the budgeting app because I've noticed that apps are so much easier for us to manage and look at it, have on the fly, but if you're an Excel person, if you're a pen and paper person, just do what works best for you and your family. In this situation, there's no judgment. Just pick what works for you.

And there you go. Now, you know how you can use sinking funds to have fun and to avoid debt at the same time.

Have you ever actually used a sinking fund in the past? Let me know in the comments below how it went or why you decided not to use one.

Now that you know how to take advantage of the savings tool, I want to make sure that you're using another tool that is totally key to your financial success: a budget. After all, how can you know whether you can actually afford to save the money for your sinking goal if you don't know how much you have available?

Moments like that is why I've created my Beginner Budget Checklist. It's an easy-to-use, step-by-step guide that will help you finally create a budget that looks like your real life. And it even helps you set financial priorities so that when you have to decide between adding money to the sinking fund or paying for an unexpected expense, you can instantly decide which one is more important.

So to grab your Beginner Budget Checklist today and start creating a budget for your life that will help you pay off debt and save for your vacation at the same time, simply head to my website at Then let me know who you are and voila, your guide is going to be in your inbox.

Let me just say it doesn't get much easier than that.

Now that you know how to stay out of debt using sinking funds, let's get connected on social media. I would absolutely love to hear what kind of sinking funds you're setting up and how they're helping you hit your financial goals. You can hit me up on Instagram and Twitter with the handle tianabclewis, or you can slide over to Facebook and find me with selahfinancialcoaching.

Also, let me know that you found this video useful by hitting that thumbs up below and subscribing to my channel. Don't forget to hit the bell, so you're notified every time I drop a new money tips and strategies, every single Wednesday.

Finally, if you're looking for more information that will help you save money, demolish debt, and still have a spa day with the girls, these two videos are exactly what you need.

With that, I'll see you next week. Bye bye.


Getting into debt is easy, but you can avoid debt just as easily with sinking funds. A sinking fund let’s you save money so you can experience financial freedom, keep your budgets intact stay (or become) debt free. In this sinking funds video, we’ll break down this personal finance tool, drop hints on some sinking funds categories and help you understand how to use sinking funds to avoid debt and go on vacation… or whatever you want to do with your money!

Ready to start budgeting so you can set up your sinking funds? Let’s get to it! Download my step-by-step Beginner Budget Checklist today at

Get more tips and strategies on creating a stellar budget here:

#sinkingfunds #avoiddebt #tianabclewis


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