Budgeting Basics | Sink Funds vs. Cash Flow vs. Delayed Gratification

By now, you know that I love sink funds to help us pay for our expected annual expenses – like our insurance premiums.

And that sink funds have also been great for us for the expenses we can anticipate having, but don’t know when or how they’ll hit – like car repairs and medical bills.

Just last week, for example, we had to spend almost $500 on repairs for our 2000 Camry. $496 is a serious amount of money and if we’d had to cash flow it, we would have been in trouble. There’s not that much spare money in our monthly budget. Fortunately, we had nearly $700 in our “car repair and replacement fund”, so I was able to transfer the money back into our checking account and cover the bill.

Sink funds to the rescue, again. They kept an inconvenience from turning into a crisis.

Now you may have noticed that I mentioned up above the words cash flow. This was a new term for me a few years ago, but I have since learned that cash flowing means paying for something in cash from the so-called overage in your monthly budget.

While I think that the discipline of anticipating and planning for future needs is probably good for all of us, it’s more imperative for those of us with less wiggle room in our budgets. Which is why sink funds have become such a key part of our personal budgeting strategy.

So, does that mean we need to have a sink fund for EVERYTHING? 

In my opinion, the answer is no. When you spend a few months tracking your spending, you will quickly get a sense of your buying behavior. Taking out the true essentials, like gas for your car and food for your bodies, you will notice a lot of “discretionary items”.

It’s this discretionary stuff that should probably be cash flowed. The nature of discretionary spending is that you don’t have to buy it. It’s a want, not a need. Maybe a very strong want, bordering on a need. But not a true necessity.

For example, if you work 20 miles away from your house and there is no reliable public transportation, you NEED a car. A brand new car, however, is a WANT.

And what if those wants can’t be cash flowed? That’s where delayed gratification comes in.

This process of divvying up our spending into sink fund spending, cash flow spending and delayed gratification spending was a truly eye opening experience for me. Before, all three types of spending would have been charged to the credit card, without so much as a second thought.

Now, I have a mental check-list that I go through before I buy anything:

  • Do I need this?
  • Have I set the money aside to pay for this (sink fund expense)?
  • Do I really want this or is it just a “craving”?
  • Do I already have something similar at home?
  • Can I cover the cost of this item with money from our “blow money” category or by adjusting another monthly category (cash flow spending)?
  • If not, is it worth it to me to save for a few weeks or a few months to purchase this item (delayed gratification spending)?

As always, personal finance is PERSONAL, which means the answer to these questions will be different for every family. And really, what rises to the level of a need will be different for every family.

Some of our expenses would be non-issues for many of you (if your kids are grown and gone, you certainly don’t need to worry about summer camp, day school and Tae Kwon Do equipment). Some of your expenses would be non-issues for me.

So, while I can’t tell you definitely YES, you need a sink fund for that, or NO, you should cash flow that, I can suggest that you use this three-pronged strategy to evaluate your expenses.

What do you think about this sink/cash flow/delayed gratification model for evaluating your expenses? Does it ring true for your budget? I’d love to hear how sinking funds vs. cash flowing works for you? Have you, too, found the delayed gratification is the key to budget success?


  1. Your sink fund posts have inspired me but it’s a big shift to make right away (or is it?). Would you recommend seeding multiple funds at once, or building them one at a time? I am thinking of Dave’s snowball method for paying off debt and wondering if it applied to growing sink funds too.

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