Sinking Funds: Save for Big Expenses Without Stress
A sinking fund is one of the simplest budgeting tricks there is: instead of being ambushed by a big expense, you save a little toward it every month so the money is ready when the bill arrives.
What a sinking fund is
A sinking fund is money you set aside gradually for a known, planned expense — not a surprise. You decide the goal and the date, divide the cost across the months between now and then, and save that amount each month. When the expense lands, the cash is already there.
Common sinking funds
- Holiday and gift spending
- Car maintenance, repairs and registration
- Annual insurance premiums
- Vacations and travel
- Home repairs and replacements
How to set one up
- List your big upcoming expenses and their rough cost.
- Divide each cost by the number of months until you'll need it. That's your monthly amount — calculate it on the savings goal calculator.
- Automate the transfer into a separate high-yield savings account so it grows and stays out of sight.
- Track each fund separately so you always know what's earmarked for what.
Sinking fund vs emergency fund
They're different jobs. An emergency fund covers the unexpected — a job loss or surprise medical bill. A sinking fund covers the expected — expenses you know are coming. Having both means neither a surprise nor a planned cost has to derail your budget.
Plan your funds
Frequently asked questions
What is a sinking fund?
Money you save gradually toward a known, planned expense — like holidays, car repairs or insurance — so the cash is ready when the bill arrives.
What's the difference between a sinking fund and an emergency fund?
A sinking fund is for expected expenses you're planning for; an emergency fund is for unexpected events like a job loss or surprise bill. It's wise to have both.
Where should I keep my sinking funds?
In a high-yield savings account, separate from your spending money, so it earns interest and you're not tempted to dip into it.