Biblically Responsible Investing – Can Two People Disagree on Sinking Funds?

By Ryan De Amicis

“This is where Dave Ramsey and I disagree…,” Rachel Cruze boldly muttered.

Is it legal for anyone, let alone a Ramsey personality, to have a conflicting opinion to Dave Ramsey? I didn’t think so. Maybe Rachel, the financial guru’s daughter, felt confident Dad would soften up after she brought the grandkids over for the holidays.

Their opinions clashed over the use of sinking funds. After completing Baby Step 3 (meaning all your debt, except your mortgage, is paid off, and you’ve tucked away 3 to 6 months of expenses in your emergency fund), Rachel encourages her listeners to consider starting sinking funds as a means to safeguard your emergency fund. Dave Ramsey, on the other hand, concerned about its potential for complexity, shares a differing opinion on the matter.

What is a sinking fund?

Though traditional sinking funds are used by companies to proactively put money aside for the repayment of a future debt or bond, this concept can be applied on an individual and family level. There are many ways this term has been redefined. While an emergency fund’s purpose is to save for an unpredictable future expense, a sinking fund is the process of saving money for a predictable future expense.

Here are three advantages of sinking funds:

1. While certain purchase costs (buying a house, a home remodel, and a new-to-you car, for example) may feel overwhelming, a sinking fund allows you to save for anything by allowing you to chip at your goal, one month at a time.
2. Whether you are saving for a cruise with your family or gifts for the holiday, a sinking fund creates an opportunity to build excitement by reminding us monthly of what we are looking forward to as we make each routine contribution.
3. Many of us have experienced buyer’s remorse after a purchase. Knowing you’ve prepared for a specific goal, a sinking fund helps you to enjoy your purchase guilt-free.

With all its advantages and potential for use, if you aren’t careful, you could quickly have many sinking funds and become overwhelmed at the task. Remember, success, in life and finances, is not about perfection; it’s about progress.

So, if you already completed Baby Step 3 (3-6 months of expenses saved in an emergency fund), consider kicking the tires by starting with one sinking fund. Then, you determine whether it’s adding or subtracting value to your life. First, start by determining the purpose of your sinking fund. Some ideas include a giving fund, house fund, car fund, or travel fund.

Second, determine a realistic amount you can contribute monthly. Then, decide if you want to withdraw cash to collect in an envelope or go to the bank to open an additional checking account.  Finally, exercise your discipline muscles of consistency through routine contributions and restraint by protecting your savings for its pre-determined goal.

Of the many advantages to sinking funds, my favorite is its ability to bring liberation by helping to enjoy a purchase guilt-free. Proverbs 21:5 states, “The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty.” By requiring another depth of thought and intentionality to our routine financial decisions, haste and poverty is repelled. Rash financial decisions resulting in unwanted, long-term financial consequences are minimized through the practice and use of sinking funds. For more years than I’d like to admit, stress would creep up around the holidays as I wondered where I’d pull the money for gifts. Christmas constantly caught me by surprise. Silly, huh? Though it hasn’t solved all of my problems, creating a giving fund has liberated me to enjoy the holiday season such as the one recently past.

In a world where we are reminded daily how little we control, sinking funds provide us a unique opportunity to put our thoughts and energy towards something we can control – how we spend our money. It’s refreshing to hear a Ramsey personality choose to go against the grain by providing a different perspective on how to prepare our finances for a better future.

Though Dave Ramsey and Rachel Cruze have differing perspectives on the matter of sinking funds, they both agree Christmas is in December each year – and it will be again in 2023 – and it’s worth setting money aside for it in advance.

Ryan De Amicis is an investment advisor with Christian Wealth Management in Boise, providing biblically responsible investment advice to Christians. For more information, visit investforthegloryofgod.com or contact him at [email protected] or (408) 758-6413.

Investment advisory services provided by Creative Financial Designs, Inc. Securities are offered through CFD Investments, Inc., Member FINRA & SIPC, 2704 South Goyer Road, Kokomo, IN 46902, 795-453-9600. Christian Wealth Management, LLC is not affiliated with CFD Investments, Inc. or Creative Financial Designs, Inc.