Unexpected bills don’t always have to feel like emergencies—especially when you know they’re coming. That’s where sinking funds come in. They help you plan ahead for the not-so-unexpected expenses that pop up throughout the year, so you can spend without stress (or a credit card).
What Is a Sinking Fund?
A sinking fund is money you set aside monthly for predictable expenses that don’t happen every month. Think holidays, car repairs, annual insurance premiums, or back-to-school shopping. These are the things that surprise your budget—not because they’re unexpected, but because you didn’t plan for them.
Sinking Fund vs. Emergency Fund
| Fund Type | Use For | Frequency |
|---|---|---|
| Emergency Fund | Unplanned crises (job loss, medical, etc.) | Rare |
| Sinking Fund | Planned, irregular costs (vacations, vet visits) | Expected |
You need both—but for different reasons.
Why Sinking Funds Work
Prevents budget blowouts: You don’t have to scramble when annual bills come due.
Avoids debt: No need to reach for a credit card.
Builds confidence: You’ll feel more in control when life happens.
Smooths out cash flow: Turns big expenses into manageable monthly chunks.
It’s one of the most overlooked (and underrated) tools in personal finance.
Common Sinking Fund Categories
The best sinking funds are for costs that are:
Predictable
Irregular (not monthly)
Too large to fit in a single month’s budget
Popular Sinking Fund Ideas
| Category | Examples |
|---|---|
| Holidays | Gifts, travel, decorations |
| Car expenses | Repairs, registration, maintenance |
| Insurance premiums | Home, auto, life (if paid annually) |
| Vacations | Flights, hotels, activities |
| Medical/dental | Copays, deductibles, procedures |
| Back-to-school | Supplies, clothes, fees |
| Home repairs | Appliance replacement, plumbing issues |
| Annual memberships | Costco, Amazon, apps |
| Pets | Vet visits, grooming, boarding |
Pro tip: Start with 2–3 and build from there.
How to Set Up a Sinking Fund (Step-by-Step)
Step 1: Pick Your Categories
Choose a few expenses you know are coming this year but aren’t monthly. Holidays, car maintenance, and travel are great places to start.
Step 2: Estimate the Total Amount You’ll Need
Look at past expenses or do a quick online search for cost estimates.
Example:
Christmas budget: $600
Vacation: $1,200
Car repairs: $800
Step 3: Divide by the Number of Months Until You’ll Need It
This tells you how much to save each month.
| Category | Total Needed | Months Until Expense | Monthly Contribution |
|---|---|---|---|
| Christmas | $600 | 6 | $100/month |
| Vacation | $1,200 | 12 | $100/month |
| Car Repair | $800 | 8 | $100/month |
Total to save: $300/month (automated if possible!)
Step 4: Create a System to Store the Funds
Separate savings accounts: Some banks let you nickname and organize goals
Cash envelopes: Perfect for physical budgeting fans
Budgeting apps: Tools like YNAB or Goodbudget are built for this
The key is keeping it separate from your main spending money so you don’t “accidentally” spend it.
Sample Sinking Fund Budget (Monthly)
| Category | Monthly Amount |
|---|---|
| Holidays | $50 |
| Car Maintenance | $75 |
| Travel | $100 |
| Pet Expenses | $30 |
| Insurance (annual) | $45 |
| Total | $300 |
This approach gives you peace of mind and predictability throughout the year.
Tips for Making Sinking Funds Stick
Start small: Even $10/month helps if you’re consistent.
Automate transfers: “Set it and forget it” for easy saving.
Track progress: Use a visual tracker or app to keep motivated.
Adjust as life changes: Don’t be afraid to update amounts or categories.
Spend when the time comes: Don’t feel guilty—this is why you saved.
What If You Can’t Afford All Your Funds at Once?
That’s normal—prioritize the most urgent ones.
Start with:
Car expenses (you’ll need them eventually)
Medical/dental costs
Holiday fund (especially after summer)
Once you free up more room in your budget, add additional categories.
Final Thought: Be Your Own Safety Net
Sinking funds don’t just save you money—they save you stress. By planning for the “unexpected but inevitable,” you’re turning financial curveballs into manageable moments. It’s budgeting with your future self in mind—and your future self will definitely thank you.
