A sinking fund is money you set aside a little at a time for an expense you know is coming. Instead of scrambling when the car insurance bill arrives, you've already saved for it month by month.
Sinking fund vs. emergency fund
An emergency fund is for surprises you can't predict. A sinking fund is for costs you can predict, even if they're irregular: holidays, birthdays, car registration, annual subscriptions, back-to-school shopping, vacations.
The simple formula
Cost ÷ months until you need it = monthly amount.
- Holidays in 10 months, budget $600: $600 ÷ 10 = $60 a month
- Car insurance of $900 due in 6 months: $900 ÷ 6 = $150 a month
- New laptop in 12 months, $1,200: $1,200 ÷ 12 = $100 a month
Our free savings goal calculator does this math for any goal and date.
Common sinking fund categories
- Car: insurance, registration, maintenance, tires
- Home: repairs, furniture, appliance replacement
- Gifts and holidays
- Medical: deductibles, dental, glasses
- Annual subscriptions and memberships
- Travel
- Pets: vet visits and supplies
How to set them up
- List every irregular expense from the past year (your bank statements will remind you).
- Estimate the cost and the month it's due.
- Divide to get a monthly amount and add it to your budget like any other bill.
- Keep the money in a separate savings account. Some banks let you create labeled "buckets" inside one account.
Start with the one that hurts most
If a dozen sinking funds feels like a lot, pick the one expense that caught you off guard most last year and start there. Adding one fund at a time is how the habit sticks.
Try the numbers yourself.
Our free savings goal calculator works it out in seconds. No sign-up.
Questions people ask
What is a sinking fund in simple terms?
Money you save a little at a time for a specific expense you know is coming, so you can pay it in full when it arrives.
How many sinking funds should I have?
Start with one or two for your biggest irregular expenses, then add more as it becomes a habit.
Where should I keep sinking funds?
In a savings account separate from everyday spending. Many banks let you split one account into labeled buckets.
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Steady Sums shares general education, not financial advice. For decisions about your situation, talk to a licensed professional.
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