Question

If you know that a large expense such as a house repair is coming and you know when the repair is needed, what savings method should you use to pay for it?

Option 1: Sinking Fund
Option 2: Emergency Fund
Option 3: Wealth Fund
Option 4: Money borrowed from family

Answer 1

For an anticipated large expense like a house repair, it is advisable to use a Sinking Fund to systematically save the necessary funds over time.

Step-by-step explanation:

If you are aware that a large expense such as a house repair is upcoming and you already know when the repair is needed, the best savings method to use would be a Sinking Fund. This method involves setting aside a certain amount of money over a period of time specifically for that expense. This ensures that when the time for the repair comes, the necessary funds are available without impacting other financial resources or emergency savings. This is different from an Emergency Fund, which is generally reserved for unforeseen expenses. A Wealth Fund is usually utilized for longer-term investment goals, and borrowing money from family (borrowed funds) can come with emotional costs and potential financial complications.