A Better Way to Manage Your Everyday Money - Book - Page 105
Short-term sinking funds
Short-term sinking funds are used to buy
relatively inexpensive items within a short time
frame. Earning interest on the money set aside
for a short-term sinking fund is not a concern.
The money stays in your checking account.
In PerNetFlow, a short-term sinking fund is
automatically maintained by the program until
the goal amount is reached.
You schedule short-term sinking fund set-asides to happen once or twice each month coincident
with when you pay bills. The money in a sinking fund ledger can be deducted automatically in
PerNetFlow by linking the sinking fund ledger to either a bill or credit card ledger.
Long-term sinking funds
Long-term sinking funds are for large purchases well into the future (e.g. down payment on a
house). Earning interest or dividends on the money in a long-term sinking fund can significantly
contribute to the growth of a sinking fund. The money in a long-term sinking fund is, therefore,
set aside by transferring the money, via a scheduled or unscheduled pseudo bill payment, from
your checking account to an external saving or investment account.
To create a long-term sinking fund:
1. Estimate how much money you will need
for the future purchase or event.
2. Set up a savings or investment account at a
bank, credit union or investment company.
Note the expected interest rate.
3. Use the annuity payment calculator in
PerNetFlow to calculate the set-aside
amount.
4. Add a pseudo bill to your cashflow
spreadsheet in PerNetFlow with the series
of payments calculated in Step 3.
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