The holiday season is just around the corner. But if mugs of hot cocoa and twinkling lights bring you anxiety about money, it’s time to start planning a holiday sinking fund now. A sinking fund is a small savings fund that helps you get ready for a future expense you know is coming up. The goal is to incrementally save ahead of time instead of draining your reserves or charging your credit card when December rolls around.
Follow these six steps to save up in a holiday sinking fund over the next three months so you can sit back and enjoy the season without worrying about money.
Calculate your holiday spending budget
Before you start saving for your holiday sinking fund, set a financial goal by calculating your estimated budget. Add up all of your expected expenses involving the holidays, such as gifts, travel, decorations, and special events. If you want to get really accurate, check your bank and credit card statements from last December and add up how much you spent then.
Once you have that total, divide the number by three to see how much you need to save each month to reach your goal. For instance, if you want to save $1,500 by the beginning of December, you’ll need to set aside $500 from September through November. Play around with both a conservative budget and a more ambitious one to see what feels manageable.
If you don’t have enough money in your normal budget to cover your holiday sinking fund, don’t worry. You’ll find several tips for discovering that extra cash coming right up.
Open a high yield savings account
With your sinking fund goal in place, you now need a place where you can stash that cash. A high yield savings account (HYSA) is a good option because you can usually find a fee-free account with an above-average savings rate. That means on top of the money you contribute, your balance will also earn interest month after month.
You can also set up automatic savings transfers to simplify the process. If you have a base savings goal each month, consider scheduling an automated transfer on the same day your paycheck hits your bank account. And since you’re not using the funds for an emergency you can plan ahead if it takes a few days to transfer the funds from the HYSA to your general checking.
Cut back recurring monthly expenses
The easiest way to divert extra money to your holiday sinking fund is to cut back on expenses you already pay for. Start with a subscription audit. Look at how many recurring subscriptions you’re signed up for and cut back as many as possible. Remember, this isn’t a permanent change; it’s a three-month sprint to help you fill that sinking fund as much as possible by December.
Consider this: if you find five subscriptions that average $15 each, that saves you $75 per month. Over the course of three months, you’ll have saved an extra $225 to put towards your holiday savings goals.
Do a no-spend challenge
A three-month window is a healthy amount of time to complete one or more no-spend challenges. Any money you save can be diverted to your holiday sinking fund. This doesn’t mean you can’t spend any money leading up to December. Instead, set incremental goals throughout the three-month period.
Maybe you don’t eat out for three out of four weeks each month. Or you could complete one full no-spend weekend or even a no-spend week each month. Consider these different options and calculate how much you could save with each challenge you take on. Then multiply that number by three to estimate how much extra cash you can realistically devote to your holiday sinking fund.
Once you see your progress, you may be inspired to go even further with your no-spend challenges. Plus, you may enjoy the holiday season even more after cutting back in the previous months. It’s like doing a fast before a decadent feast – get ready to savor every moment of December!
Reduce your grocery bill
A liberal monthly grocery bill averages over $400 per person for most Americans. A family of four could easily spend at least $1,600 a month at the supermarket. Look for ways to stretch your budget and save a little more for your holiday spending. Imagine if you cut back 20% of $1,600 per month for just September, October, and November. You’d save $320 per month, for a grand total of $960 saved by December.
Use your actual spending from last month to set a goal. Even if your typical budget isn’t as high as $1,600, you can still probably find ways to cut back. Start by digging through your pantry, refrigerator, and freezer and creating meal plans around those items you already have. Then you can fill in with a few fresh items from the grocery store.
Once you’ve used up your existing grocery stock, get creative with inexpensive meal ideas. You could do a couple of meat-free nights each week or swap ground beef with ground turkey. Also consider cutting back on non-essentials like soft drinks and sparkling water. Another strategy is to order your groceries online to keep track of your total cost in real-time, comparison shop, and avoid last-minute impulse buys.
Turn your clutter into cash
Before you start bringing out the holiday decor and receiving gifts that take up space, spend some time decluttering and selling your items online for an extra injection of cash. This doesn’t mean you have to give up things you love. But realistically, you probably have some clothes, books, toys, tools, or other items that have outgrown their usefulness in your home.
Schedule an hour here and there to declutter each room and closet of your home. Then list your items on a secondhand selling platform like Facebook Marketplace, eBay, or Poshmark. Each one may be better suited for different types of items. Facebook Marketplace, for instance, is ideal for larger items that don’t ship easily, while Poshmark is designed for clothing.
Just remember to meet in public places for any Facebook Marketplace transaction. Also know that if your selling turns into more than an “occasional yard sale,” you may need to pay taxes on the profits.
The bottom line
It’s not too late to set aside some serious cash before the holiday season arrives. Even choosing just a few strategies on this list can boost your sinking fund by December. Start with a realistic budget of how much you want to spend, then pick the tips that have the biggest bang for their buck.
The best part is that this is a very short-term sprint with a clear, fun reward at the end of it. Not only will you be financially prepared for the holidays, you’ll be able to enjoy them knowing that you’re paying for everything with cash, instead of racking up debt.
Written by Lauren Ward
Lauren Ward is a personal finance writer who is passionate about helping people simplify their financial decisions. Her work has been featured in outlets such as USA Today Blueprint, CNN Underscored, and many more. She lives in Virginia with her husband and three children.