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Have you ever forgot about a loved one’s birthday and you were short on money because payday is not until next week?

Well, I have a solution for that...a gift sinking fund.

What is a gift sinking fund you ask?

According to Dictionary.com, a sinking fund is a fund formed by periodically setting aside money for the gradual repayment of a debt or replacement of a wasting asset.

In this case, you are going to periodically set aside money for gifts, so your not scrambling when it's time to pay for birthday gifts, baby showers, weddings, Christmas, etc.

The first thing you need to do is find a place to save your gift sinking fund and it’s not under your mattress and not in a jar.  It needs to be somewhere that’s not easily accessible so you are not tempted to withdraw the money and allows you to earn interest.  I am a fan of online banks that gives you the option to create different buckets for your funds.  So you have the ability to have a gift sinking fund, a traveling fund, auto maintenance fund, home maintenance fund, etc.

Next, what gift giving occasions will you encounter?

I think it is good to consider what occasions you typically are buying gifts for, so you can set a realistic budget for your sinking fund.  

I typically plan for 2 baby showers, 2 weddings, my normal birthday purchases (kids, nieces, nephews, significant other, parents, siblings, friends, whoever) and my usual Christmas budget (be realistic, how much do you really spend).  You can’t always plan for who is having a baby or who is getting married but if you include them in your budget the money will be there.

Now let’s set your gift budget for the year based off of the occasions you typically celebrate including baby showers and weddings.

Now in my household, Christmas is only for the kids (and grandma) so our Christmas budget is not as large as other people but for this example, I’m setting the gift budget for the year at $1,000, your budget may be less or more pick the number that is realistic for you.

The easiest way to build your gift fund is by having a set amount automatically transferred into your gift sinking fund every time you get paid.  So if you’re paid by direct deposit, you may have the option to have the money sent directly to your gift sinking fund, if not, have the money automatically transferred from your bank account on payday or a certain day of the month to your gift sinking fund.  

Using a budget of $1,000 here is the amount you should transfer into your gift sinking fund based on your pay cycle:

Weekly - $19.23 each payday

Bi-weekly -  $38.46 each payday

Semi-Monthly - $41.66 each payday

Monthly - $83.33 each payday

Keep in mind, that you will be pulling money from your gift fund during the year to pay for gifts so it should never have a balance of $1,000.

I hope you will try the gift sinking fund, it really makes budgeting for gifts easier and relieves the stress of paying for gifts.

Will you set up a gift sinking fund? Let me know in the comments below.