One sinking fund that you should consider setting up immediately is a new car fund. This fund is designed so that you would pay cash for your car, and never have to take out an auto loan again. To many people the idea is simply preposterous. Not many people will ever have enough money saved and be in a place where they are comfortable paying for a new car. That is exactly why you should do this. If you are not comfortable making the purchase with cash up front, then should you really be making the purchase in the first place?
Most of the people who pay cash for their cars do not drive brand new vehicles. This saves them a lot of money, since cars depreciate in value very rapidly. However, just because they do not have new cars, does not mean that they do not have nice cars. It is fairly easy to find a fully loaded three-year-old car for significantly less than a brand new, plus the price is not going to depreciate as quickly.
If you pay cash for a car, the money you are saving will be working for you. If you take out a car loan then the interest will be working against you. The only exception to that are the zero percent loans and for the most part, they are a thing of the past. In many cases you can find used cars with valid warranties. There are various companies that offer certified pre-owned cars with the warranties intact.
If you save for a car rather than purchase one with a loan, it allows you more flexibility when it comes to your budget. If a sudden expense arises you can divert the funds from your car fund for a month, but you would not be able to do that if you had a car payment. The less money you owe to others, the greater the freedom you have.
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