Today I’m participating in the Ultimate Blog Swap. You’ll find me posting over at Northern Cheapskate about Buying Organic On A Budget, and I’m excited to welcome Mandi  from Life Your Way to For the Mommas:

For many families, budgeting for everyday expenses like groceries and utilities is challenge enough; thinking about all of the extra expenses that crop up each year – like Christmas and birthdays, home and car repairs, teeth and eye care expenses, sports, back to school, etc. – can be downright overwhelming.

Rather than finding yourself in a position where you’re relying on credit cards for these expenses – and then wasting your hard-earned money on paying off those cards in the following months – try creating separate sinking funds instead.

The term “sinking fund” was originally a business term used to designate a savings account where a corporation holds funds for the repayment of a debt in order to improve their liquidity.

In personal finance, a sinking fund is a savings account that is designated specifically for an irregular expense. This money is pulled out of your checking account and held for future expenses, and it’s separated from your traditional savings account to give you a clear picture of how much money you have available for that expense.

Online banks such as ING Direct make the creation of sinking funds easy: you can literally open a new subaccount with a few clicks, making it possible to have five or ten separate sinking funds according to your family’s needs.

Setting up sinking funds and using them are two separate things, though. How do you actually fund these accounts? If your budget is tight, you can still use the sinking fund principle by adding just a couple dollars to each account from each paycheck.

To fully take advantage of your sinking funds, though, you should be putting 1/12th of your annual expenses in any category into savings each month. So if you spend $500 at Christmas, you’ll need to add $41.67 to the account each month (since we’re four-and-a-half months into the year already, you’ll need to start with $62.50 each month for this year!). Similarly, if you spend an average of $100 per person on clothing each year, you’ll need to put $8 per person into savings each month.

If your monthly budget has enough wiggle room for these amounts, then you’re ready to get your sinking funds started. If there’s no extra money in your budget, there’s still hope, though. Consider some of these other ideas for saving money for irregular expenses:

1. Yard Sales
Yard sale season is just beginning, so you have plenty of time to organize your own sale. Go through your home – including hidden storage areas in the attic or basement or deep in the back of closets – and begin clearing the clutter. Designate an area of your home for gathering all of your yard sale wares together and add pricing stickers as you go so that you don’t have to worry about pricing everything on the day of the sale. If you haven’t decluttered in a while, you can probably make a couple hundred bucks from a yard sale, which can be added to one sinking fund or divided among them all.

2. Selling on eBay, Amazon or Craigslist
Yard sales are great, especially if you have a lot of stuff that you just want to get rid of, but if you have fewer yet more expensive items – electronics, furniture, etc – than selling through an online marketplace like eBay, Amazon or Craigslist may be a better option.

3. Bank Your Savings
Another option is to simply bank your savings. If you use $10 in coupons on a grocery purchase, add $10 to a sinking fund. If you submit a $5 rebate, add $5 to your sinking fund. Did you find something on Freecycle that you were planning to purchase? Bank your savings. Being able to actually see your savings grow in your sinking funds can be great motivation to look for additional ways to save money.

These aren’t the only way to increase your income and your savings, though! There are dozens of ways to earn money from home – from online surveys to starting a blog. The key is to figuring out what works and not discounting the value of finding a couple dollars here and a couple dollars there!

Mandi Ehman lives in wild, wonderful West Virginia with her husband of ten years and four beautiful, spunky little girls. As a full-time work-at-home, homeschooling mom, she runs Life Your Way and Jungle Deals & Steals and consults for a variety of websites and brands. Mandi loves coffee, chocolate, easy meals, beautiful things and minimalist spaces!

Visit Life Your Way to see all of the Ultimate Blog Swap participants!