Thursday, February 19, 2015

The concept of a sinking fund

A "sinking fund" is a fund a form of intentionally accumulating  a sufficient saved amount to replace a necessary physical asset by periodically setting aside money in advance of the need. For example, roofs. Sooner or later, every roof needs to be replaced. Even slate roofs generally don't last more than 125 years, in this climate. A sinking fund is a very British idea.

The American way is to wait until the need arises and then borrow the money and pay it off over time afterwards. Either way, you always have to pay and borrowing always costs more. Budgeting and funding a sinking fund requires much more discipline.

This is a story told by Gregory Bateson.
“New College, Oxford, is of rather late foundation, hence the name. It was probably founded around the late 16th century. It has, like other colleges, a great dining hall with big oak beams across the top. These might be eighteen inched square, and twenty feet long.

“Some five to ten years ago, so I am told, a busy entomologist went up into the roof of the dining hall with a penknife and poked at the beams, and found that they were full of beetles. This was reported to the College Council, who met in some dismay, because where would they get beams of that caliber nowadays?

“One of the Junior Fellows stuck his neck out and suggested that there might be on College lands some oak. These colleges are endowed with pieces of land scattered across the country. So they called the College Forester, who of course had not been near the college itself for some years, and asked him about oaks.

“And he pulled his forelock and said, “Well sirs, we was wondering when you’d be askin’.”

“Upon further inquiry it was discovered that when the College was founded, a grove of oaks had been planted to replace the beams in the dining hall when they became beetly, because oak beams always become beetly in the end. This plan had been passed down from one Forester to the next for four hundred years. “You don’t cut them oaks. Them’s for the College Hall.”

“A nice story. That’s the way to run a culture.”

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