Ever been hit with a “surprise” expense that wasn’t actually a surprise at all?
Like your car insurance that comes due every six months, or the holidays that somehow manage to sneak up on your wallet every December?
That’s where sinking funds come in – your secret weapon for stress-free saving!
What Is a Sinking Fund?
A sinking fund is money you set aside regularly for planned future expenses.
Think of it as creating little pools of money for specific purposes. Unlike an emergency fund (which is for unexpected expenses), sinking funds are for costs you can see coming from a mile away.
Here’s the simple formula: Total Expense ÷ Months Until Needed = Monthly Contribution
For example, if you need $1,200 for car insurance in 6 months: $1,200 ÷ 6 = $200 per month
Why You Need Sinking Funds (And Why Your Savings Account Isn’t Enough)
Let’s be real – lumping all your savings into one account is like throwing all your clothes into one drawer. Sure, everything’s there, but good luck finding what you need when you need it!
Sinking funds help you:
- Avoid debt by planning ahead
- Reduce financial stress
- Stay on track with your goals
- Stop raiding your emergency fund
- Feel confident about spending when the time comes
Sinking Fund Categories
Top 6 Sinking Funds to start:
- Car
- Medical
- Birthdays
- Christmas
- Vacation
- Home Improvement
Great news! I’ve created a Free set of envelopes of the top 6 Sinking Funds.
Download it here: Sinking Funds Envelopes
Here’s a list of more sinking Funds you can start:
Vehicle & Transportation
- Car (Maintenance)
- New Car
Health & Personal Care
- Medical
- Dental
- Vision Care
- Hair Care
- Beauty
Holidays & Special Events
- Christmas
- Halloween
- Valentine’s Day
- 4th of July
- Anniversary
- Birthdays
- Mother’s / Father’s day
- Wedding
- Easter
Home & Living
- Home Improvement
- Furniture
- Appliances
- Grocery Hauls
Technology
- Phone
- Computer/Laptop
- Subscriptions
Family Specific
- Back-to-School
- Baby
- Sports
Lifestyle
- Vacation
- Clothing
- Pets
How to Set Up Your Sinking Funds
Step 1: Choose Your Categories
You can start by downloading my free Sinking Funds that will align with some of your upcoming expenses.
Don’t overwhelm yourself by trying to do too many sinking funds at once, start with a few and once you get used to saving, you can add some more.
Step 2: Pick Your Storage Method
Options include:
- Separate savings accounts
- Digital envelope system (like YNAB or EveryDollar)
- Cash envelopes
- Spreadsheet tracking
Step 3: Calculate Contributions
For each fund:
- Identify the total amount needed
- Divide total by 20 (spaces on the sinking funds envelope)
- Place this amount in the envelope and color a line every time you do. (Sinking fund envelopes make it easy to see how far you’ve come and how far you still have to go.
Common Sinking Fund Mistakes to Avoid
- Creating Too Many Funds at Once
- Start small and build gradually
- Not Automating Transfers
- Make it easy on yourself with automatic savings
- Forgetting to Track Progress
- Regular check-ins keep you motivated
- Raiding Funds for Other Purposes
- Treat each fund as sacred!
Creative Ways to Fund Your Sinking Funds
- Use cashback rewards from credit cards
- Save all $5 bills you receive
- Round up purchases and save the difference
- Do a monthly savings challenge
- Allocate any unexpected income
Tips for Sinking Fund Success
- Name your funds specifically Instead of “Car Fund,” try “New Tesla 2025 Fund” – makes it more exciting!
- Track progress visually – use my simple to use, fun, sinking funds envelopes.
- Celebrate milestones Reward yourself when you reach savings goals
- Review and adjust quarterly Life changes, and your sinking funds should too
FAQ About Sinking Funds
Q: How many sinking funds should I have? A: Start with 3-5 funds for your most important upcoming expenses. Add more as you get comfortable with the system.
Q: Where should I keep my sinking funds? A: A high-yield savings account is ideal for larger funds. For smaller amounts, a regular savings account or cash envelope system works well.
Q: What’s the difference between a sinking fund and an emergency fund? A: Emergency funds are for unexpected expenses (job loss, medical emergencies). Sinking funds are for planned, expected expenses.
Ready to Start Your Sinking Funds?
Remember, successful sinking funds aren’t about perfection – they’re about progress. Start small, be consistent, and watch your financial stress melt away as you build these powerful saving tools into your budget.
Need help tracking your sinking funds? Download my free Sinking Funds Tracker!
