Sinking Fund vs. Emergency Fund: What the Difference?

Описание: So last week I had a call on my Third Channel, Ask Tommy Bryson, where I take calls from Monday-Friday from 12pm-5pm for free. And the question I got was, Tommy should buy a new car, my car just broke down and I have to use my emergency account.

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1. Let's Defined Emergency funds first

Emergency Account:
When I was in college I saved between $6-$60 a week for an emergency over one year and I had around $2000 dollars
Now as murphy laws says, anything that can go wrong will go wrong, and sometimes all at ones
A few months later my Dad passed away, which meant I had to go to the Dominican Republic to help out ( which means a lot of money ) – plus I took that and rebought all of my equipment and decided I was going to dedicated 100% to Youtube and quit my job

Textbook definition:
An emergency is for things that are unknown
Like what happened to me, or illness or losing your job during a pandemic
And usually, I recommend you have a minimum of 3-6 months and 12 months if you are ultra-conservative ( I only have 6 months )
So currently for me that’s $12k saved up

Ps. If you are in debt the idea is just to save $1000 for a quick emergency fund and also through in 1% of your income per paycheck, ( but priority is to pay off debt )

2. Sinking Fund

Sinking Fund Example:
Every year I go on a vacation with my fiancé, usually just Once a year
This is obviously not an emergency but expenses in the future
So instead of spending all that money at once I can save it up weekly and have enough for the vacation * which is usually $1000-$1300
So I just divide how much money I need by the amount of the time I need ( 1 year and every week means $25 a week)
But a lot of people put it on a credit card and then pay $100 a month and 25% interest

Textbook Definition:
Sinking funds are for the Known, expenses and things that you can expect to happen sometime in the future
Car repairs or replacement, Vacations, the new PS5 all of those things
Most assets can be expected to need maintenance at some point ( so save up for those things )

Ps. SO obviously this is very different from an emergency fund, and that’s why I told the person that called me in, that he should have expected this, because of cars break down. ( ontop of that he wasn’t giving the car at least 2 car checks per year)

3. Where to Save up this money
Now the account I use is called Sofi Money and it’s the best one in my opinion
However though if you try to sign up and don’t qualify, then you can use the Capital 360 savings account which also works okay

What I like about the Sofi App
Emergency can be store inside and funded automatically
Then I can also save for sinking funds also
Save for anything
Fun vacations
Inevitable expenses
Medical expenses ( decductible )
Taxes

4. How many is too many
Priority wise, you should do your emergency fund first, and once that funded then you can start saving up for the important sinking funds
Like car maintenance, house maintenance, and so on ( the things you really need )
Once that’s done you can start saving up for the little things, vacations, new wallet, whatever is you want

Remember though:
People go into debt because they are impatience
But if you do this, that won't be you, you can save up for things
Even Christmas gifts

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Disclosure & Educational Disclaimer:
Some links in this video may be affiliate links, and I may earn a commission. Content is educational and accurate as of posting; offers may change. I’m an accountant but not your accountant; always consult your own accountant/CPA or financial advisor. No income or results are guaranteed.