How To Use Cashlet App To Create Sinking Funds For Beginners In 5 Easy Steps

sinking funds

Written by Agatha

July 7, 2023

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“What does financial success look like to you?”

This is one of the questions I ask all my potential financial coaching clients. Almost all of them say;

“I want to travel more.”

“I want to travel on a whim.”

“I want to travel more without feeling guilty about it.”

“Financial success to me is being able to take my family on at least two vacations per year.”

After teaching my clients how to track their expenses and how to budget, almost all of them ask;

“How can I afford to both invest while also funding my insatiable appetite for travel?”

Almost everyone I have interacted with desires to travel more without worrying about the cost. We all want to travel more without jeopardizing our financial security and without coming back home to feelings of guilt for having spent beyond our ‘budget’.

What if I told you there’s a way you can save, invest, fund most of your desires and also permit yourself to travel guilt-free?

Having multiple sinking funds is the financial solution you’ve been looking for!


What are sinking fund bonds?


In corporate finance, a sinking fund is money saved to pay off a debt or a bond. When companies have debt in the form of bonds, they create a fund (sinking fund) which they use to GRADUALLY save money towards offsetting the debt. This helps them avoid a large lump sum payment at maturity of the bond. Smart, huh? 😁

 We can borrow and use the same concept for our financial planning.


What are sinking funds? How can you use sinking funds to make your financial goals and desires a reality?


A sinking fund is money set aside or budgeted for a future expense. A sinking fund is a form of short-term savings aimed at funding your desires and goals. It’s money that you save to spend! Savings for planned purchases.

When I ask people why they’re struggling with sticking to their budgets, most people say “something came up” which almost always means a large, predictable expense.

Some of the large predictable expenses include: 

  • Car insurance
  • Birthdays 
  • Travel
  • School fees
  • Christmas holidays
  • Tech upgrades 
  • Home renovations
  • Taxes
  • Replacing car tyres
  • Etc!

Lack of planning for these large, non-monthly expenses such as travel will always destabilize you financially and leave you feeling like it’s impossible to stick to your budget.

Before I dive deeper into helping you understand how you can use sinking funds and also recommend the app I’m using to save for the same, here’s a disclaimer: you have to be realistic about your travel expectations because your income, planning, consistency with your savings and a few travel hacks determines how much you can afford to travel. But you should already be excited because the app solves most of these challenges!

At this point, you must be wondering…

What is the difference between sinking funds and savings accounts?


Sinking Fund vs. Savings Account


Back in mid-2018 when I started my financial freedom journey, I quickly learnt that having a good spending plan that ensures you live below your means results in having extra money to save. Saving involves putting money aside, mostly done in a bank account.

I made my way to the nearest bank and set up a savings account. The savings account differed from a current account in that I was only allowed four withdrawals in a year, which prevented me from spending my savings.

While that was a smart decision based on my level of financial literacy at the time, the savings account wasn’t goal-based. I didn’t know how much in total I was meant to have in that account. 

At what point do you stop putting more money in a savings account? What’s the purpose of the account? When will you use the money?

That’s the difference between a savings account and a sinking fund. A sinking fund is a goal-based savings account.

A sinking fund is usually more specific than a savings account since you know exactly how much you’ll put in, the goal you’re saving for and when you’ll spend the money. There are no blurred lines.

Instead of lumping everything together in your savings account, I recommend having multiple sinking funds.


Sinking Fund vs. Emergency Fund 


A sinking fund is different from an emergency fund.

An emergency fund is money saved to cover unexpected/unknown financial expenses. These include:

  • All basic living expenses in case of a job loss
  • medical emergencies
  • unexpected travel
  • car accident expenses
  • traffic fines 
  • unexpected home repairs
  • etc

The first step towards saving an emergency fund is figuring out how much money you need to cover all your basic living expenses per month, then saving, at a bare minimum, three times that amount. Ideally, a good emergency cushion should be 1 year’s worth of living expenses. You need a budget to come up with this figure. 

A sinking fund is savings for planned purchases. You know exactly what the money is for and you know when you’ll use it.

Sinking funds are for the known. Emergency funds are for the unknown.

When you spend money from your emergency fund, you have to replenish it. The thought of spending money from your emergency fund makes a lot of people anxious: they’re worried about how long it will take them to rebuild the fund. This is why you shouldn’t dip into your emergency fund for predictable expenses, it leaves you vulnerable.

I’ve heard some people say that spending money from their emergency fund leaves their accounts and soul feeling defeated.

When you spend money from your sinking fund, you don’t necessarily have to replenish it because some purchases are one-off e.g. a wedding or deposit for a house.

This is exactly why you should have both an emergency fund and sinking funds.


Sinking fund examples


Sinking funds should be set up based on your goals. There’s usually no right or wrong way to set up sinking funds. You can create a sinking fund for basically anything.

These are some of the examples of how you can use a sinking fund:

  1. Quarterly wardrobe upgrade
  2. Holidays e.g Christmas holidays, family vacation, honeymoon 
  3. Events e.g Birthdays,  anniversaries, baby showers
  4. Tech upgrades e.g sound system, phone, new laptop
  5. Vehicles: insurance, new tyres, new car, servicing
  6. Home repairs eg DIYs, furniture, renovations
  7. Travel
  8. Insurance premium payments e.g medical, life, education insurance

How to create a sinking fund using the Cashlet App

Step 1. What do you want to save up for?


Based on our description, a sinking fund is a goal-based savings account. To get the most out of your sinking funds, start with the end in mind. 

For example, I’m currently saving up for a return flight ticket to London to visit a friend I met in 2016. I have been promising her for the last 7 years that I would visit but this year, I’m determined to make it happen. 

How much do I need to save? KES 150,000

When do I want to achieve this goal? I started saving in June and would like to achieve the goal by December 2023.

Timeline: 7 months

sinking funds

Step 2: Where will you keep your sinking fund?


Most people use bank accounts for such savings but how about we use an account that earns you compounding interest? This will help you reach your sinking fund goals faster!

Cashlet enables your hard-earned money to earn a high-interest rate of up to 9 – 11% per year. That is 3 times more interest than if you keep your funds in your bank or Mpesa account.

I’m using the Cashlet App to save for my flight ticket because, unlike a bank account, Cashlet has a goal feature that enables you to set financial targets. They do this by calculating how much you should save on a daily, monthly, or yearly basis to achieve the goal. This offers the accountability and consistency you need to make your financial dreams a reality!

sinking funds

Based on my goal, Cashlet recommends that I should save KES 25,800 per month.

Click here to download the Cashlet App and get started with creating different goals for your sinking funds.


Step 3: Calculate how much you need to save per month for each fund 


On Cashlet, there’s no limit to the number of sinking funds you can set up.

To determine how much you need to save per month, take the total amount and divide by period. Using my flight as an example, I need to save KES 150,000 within 7 months.

150,000/7 = KES 21,428.57 (this differs from the KES 25,800 above because I made KES 35,000 deposit in June)

Cashlet will do this Math for you!


Step 4: Include your sinking fund amount in your budget. 


Sinking funds only work if the amounts you need to save are incorporated into your budget. This way, you have a budget line for everything: 

  • money to pay for your basic living expenses
  • pay off debt
  • put money towards your sinking fund
  • build an emergency fund
  • and invest!

Note: you can also save for your emergency fund on Cashlet.

This also shows that proper budgeting permits you to spend and incorporating sinking funds allows you to spend big!


Step 5: Monitor your sinking funds


Cashlet will send you notifications when it’s time to top up your sinking funds. This way, they ensure you stay consistent with your goals.

Monitoring your sinking funds also involves making adjustments when necessary. Sometimes your financial circumstances change, which could mean readjusting how much you save to reflect your current financial situation.

Step 6: Celebrate when you reach your goal!


I can’t wait to achieve my KES 150,000 travel fund goal! When you achieve your savings goals, celebrate and thoroughly enjoy the trip, new gadget, event, car etc

If yours is a big savings goal such as a car, you can also incorporate small rewards such as a takeaway dinner when you reach certain milestones.

Cashlet enables your desires to come alive!


How many sinking funds should you have?


Seeing that sinking funds can help you accomplish almost everything on your desire list, you may be tempted to create a sinking fund for everything! Hold up, that is not the way to go!

One of the greatest financial struggles I’ve observed in many people is ‘spreading yourself too thin.’ This occurs when you have so many financial goals and not enough money to fund all of them within a short period. When you put very little money into each of these goals, you won’t experience any significant progress! For a lot of us, there’s only so much money to go around!

If you were to split KES 40,000 per month into 10 sinking funds, this is what would happen:

  • KES 5,000 for travel
  • KES 15,000 for a new car
  • KES 3,000 for home renovations
  • KES 3,000 for medical insurance 
  • KES 5,000 for a new laptop
  • 1,000 for a home security system
  • KES 1500 for a wardrobe upgrade
  • KES 2,000 for school books
  • KES 3,000 for your wedding anniversary
  • KES 1,500 for friends’ birthday gifts

After 12 months, your sinking funds totals would be:

  • KES 60,000 for travel
  • KES 195,000 for a new car
  • KES 36,000 for home renovations
  • KES 36,000 for medical insurance 
  • KES 60,000 for a new laptop
  • 12,000 for a home security system
  • KES 18,000 for a wardrobe upgrade
  • KES 24,000 for school books
  • KES 36,000 for your wedding anniversary
  • KES 18,000 for friends’ birthday gifts

Despite consistently contributing money towards the 10 sinking funds for a whole year, you’ll be far off from achieving most of the goals. This will leave you frustrated and just like most people, you’ll conclude that sinking funds don’t work and you’ll quit. 

If you prioritize and pick just 3 of the above funds for a year, you’ll most likely achieve the goals. For example, medical insurance is more of a priority as compared to a Christmas fund. The progress will make you proud which will lead to consistency.


Is Cashlet legit?


Let’s talk about the safety of your savings in Cashlet. Yes, Cashelt is regulated by the Capital Markets Authority.

Cashlet DOES NOT hold your money. When you make a deposit, the funds move directly into the collection bank account of their partner fund managers such as ICEA Lion Asset Management and Etica Money Market Fund.  These fund managers are also monitored and regulated by the Capital Markets Authority (CMA).

They will continue to add more funds as their goal is to be a one-stop shop for Money Market Funds in Kenya.

All your financial information is secured with bank-level encryption technology of the highest standards. Based on my experience so far, it’s one of the best savings and investment apps in Kenya.

You secure your Cashlet account with a unique pin code or with your biometrics so that only you have access to your funds even if your phone is with someone else.

I would recommend reading their Terms & Conditions and Privacy Policy on the app for more information.

Why should you use Cashlet to save your sinking funds?


1. Diversity of Money Market Funds


Most Money Market Funds in Kenya often involve a lengthy and tedious account opening process where you have to print the forms, fill them, scan and send the forms back to the fund manager. From my experience, out of every 10 people who show interest in opening Money Market Fund accounts, only 2 follow through with the process.

Cashlet makes everything simple when it comes to saving and investing. Everything is through the mobile app, involves no paperwork and is lightning fast. Depositing and withdrawing funds takes only 3 clicks on your phone. You can do it anytime, anywhere, and it’s instant.


2. Access to accountability tools


Apart from sending you reminders when your deposits are due, Cashlet also has a chat box feature where you can chat with the team.

Their customer support is available whenever you need them through the in-app chat feature. Got any issues with the app? Want to understand money market funds and other financial products? Need general personal finance coaching? The team is ready to assist you at your convenience.

The in-app chat is my favourite feature because financial coaching is expensive and inaccessible to a lot of people. Take advantage of it and bombard the team with questions, it’s FREE!


3. You earn compounding interest


Cashlet invests your money in Money Market Funds. This enables your hard-earned money to earn a high-interest rate of up to 9 – 11% p.a. That is 3 times more interest than if you keep your funds in your bank or Mpesa account.


4. You can start with as little as KES 500


Click here to download the app and start saving!


Frequently Asked Questions about Cashlet


1. Is it free to use Cashlet?


Cashlet is free to use for any balances under KES 20,000. 

For balances over KES 20,000, an amount of KES 40 is deducted from your balance monthly. 

For all withdrawals and deposits, normal M-Pesa fees apply.


2. Can you get a loan on Cashlet?


No. Cashlet is an app that helps you to save, invest and grow your money. They do not give loans.


3. How is my interest paid?


Interest is accrued daily on your balance, and reflects on your dashboard at 10 am every day. You can withdraw all or part of the interest at the end of each month.


4. When do your savings begin to earn interest?


Your savings start to earn interest within 2 working days after you make a deposit. 

Your daily returns are credited to your Cashlet account by 10 am each day.


5. Can you monitor your saving goals and interest?


Yes, you can monitor the progress of your goals and the returns daily on the app dashboard.


6. When can I withdraw my money?


You can deposit money into your account at any time. Likewise, you can withdraw all or part of your funds at any time. You have 100% flexibility, and there is no lock-in period.

You can check more FAQs from Cashlet users on their website.


What is the purpose of a sinking fund? 


My biggest money lesson this year is to be very deliberate about defining my ‘rich life.’ 

Does your rich life involve taking glam vacations, flying business class and staying in 5-star hotels? 

Does your rich life involve dining in fine restaurants? 

Is having a bookshelf full of your favourite books (including those you’ll never read! 😂) make you happy?

Do you want to donate to causes you care about every month? 

Do you want to sleep on premium linen bedsheets?

Sinking funds allow you to do exactly that. Spending money can be fun and liberating!

Apart from allowing you to fund most of your desires and permitting yourself to travel guilt-free, sinking funds have other benefits:


1. Avoid liquidating long-term investments


Nothing irks me more than seeing people liquidating their long-term investments to fund emergencies or short-term needs! Liquidating your investments to pay for short-term needs means you’ve interrupted your compounding journey, which is one of the reasons you’re net worth isn’t growing!

Saving is a prerequisite for investing. If you’re a good saver, then you can be a good investor. 

Sinking funds help you to avoid liquidating your long-term investments by saving for your short-term needs.


2. Allows you to save for your short-term goals


Your financial plan should include short-term, mid-term and long-term goals.


3. Save for #softlife and extravagant fun!


My favourite financial advice? Life is for the living! Allow yourself to experience the best life you can afford and improve the quality of your lifestyle by eliminating the guilt associated with travel and large purchases by using sinking funds.


4. Eliminate surprises in your life


After reading this article, ‘something came up’ should not be part of your budgeting vocabulary!

Be deliberate about saving for large, irregular purchases/expenses.


5. Avoid getting into debt 


Without sinking funds, you end up either liquidating your long-term investments, dipping into your emergency fund, or getting into debt when you need to make a large purchase. 


6. Avoid impulsive purchases


If you plan and save for large expenses, you’re less likely to succumb to the temptation of buying items you don’t need. Sinking funds help you to build healthy money habits.


7. Sinking funds help you organize your budget


8. Peace of mind


Your mental health and overall stress levels will reduce because you can stick to your budget and have more opportunities to enjoy your income.  

Which sinking funds should you have? If you know that buying something will be an uncomfortable expenditure to come out of your monthly budget without planning, then you probably need to set up a sinking fund for it!

Do you have more questions about sinking funds and the Cashlet app? Leave them in the comments section, I’ll get the Cashlet team to answer all!

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  1. Hafswa Hilani

    Can one have more than one cashlet account for their sinking funds or how can one create multiple sinking funds with cashlet

    • Agatha

      Hi Hafswa, yes you can! On the homepage (goals page) there’s a + sign that says ‘Add another goal’. Click that and you’ll be good to go!


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