What funds best suit your situation?…find out

Don’t get confused when you are asked to have a sinking and emergency fund as both are significant for your financial goals attainment.

When you are expecting a baby, you need a sinking fund but when you lost a loved one or fire outbreak resulting in lost of property or valuable item, your emergency fund can help you out.

People often confuse sinking funds and emergency funds. They also use their emergency fund, when they should be setting up a sinking fund instead.

Responding to the question “What Is the Difference between a Sinking Fund and an Emergency Fund, Miriam Caldwell, personal finance specialists explained that when you set up a sinking fund, you are basically saving up money to cover an upcoming expense. You may do this to purchase a new car, go on vacation, replace your furnace or repair your roof. An emergency fund is in place to cover the unexpected expenses that can happen. This could be an unexpected car repair, an unexpected medical bill or an emergency flight home to your parents.

She said you can set the funds up so that they exist in the same savings account, but it is a good idea to keep the amounts separate. You can do this on a sheet of notebook paper or in your budgeting software. This allows you to see how much you have set aside for each category, but it also keeps the money separate from your checking account and your daily transactions. You do want your emergency fund to be easily accessible, so that you can get the money quickly if you need to

According to her, the longer you budget, the more you will see items that you should have a sinking fund for. For example, if you wear glasses, you buy them every year, so you should plan to save up for them every year. Similarly you replace your tires on your car every other year or so, and the first time, you may not have planned for it, but now you can see that you need to set aside money to cover the expenses. If you drive an older car, it is a good idea to go ahead and set aside money to cover the cost of future repairs on the care. Eventually you will be able to budget so well that you will only need to use your emergency fund, if you have lost your job or have a major catastrophe, otherwise you will use sinking funds to cover the purchases.

Similar to choosing the right account for your emergency fund, she said you need to choose the correct account for your sinking fund. You want the money to be easily accessible and safe. This means that you do not want to invest the money in your sinking funds in the stock market or something similar. It also means that you need to carefully consider all of your account options.

HOPE MOSES-ASHIKE