SAVINGS · 3 MIN READ
Plan for the bills you know are coming.
A sinking fund turns irregular but predictable costs, like car registration or holiday gifts, into small, steady monthly amounts.
Published
Some expenses aren’t emergencies, but they still feel like one when they arrive. The car registration renewal. The annual insurance premium. Holiday gifts. They come around every year, yet they can land on a month that already feels full.
A sinking fund is a simple fix. It’s money you set aside a little at a time for a specific cost you know is coming. When the bill shows up, the money is already there. The Consumer Financial Protection Bureau (CFPB) notes that saving ahead this way can reduce stress when large, periodic payments are due.
How a sinking fund differs from an emergency fund
An emergency fund covers surprises: a job loss, a medical bill, a broken furnace. A sinking fund covers costs you can predict, even if they don’t come every month.
Keeping the two apart helps both. If the holiday budget comes out of your emergency fund, you may be short when a real emergency hits. And if you have no plan for predictable bills, they can start to feel like emergencies.
Make your list
Start by listing the costs that come once to a few times a year. The CFPB’s savings plan tool gives examples like car insurance, renter’s insurance, tools for your trade, back-to-school costs, birthdays and holidays.
Other common items include:
- Car registration and inspection
- Annual or semiannual insurance premiums
- Membership fees and subscriptions billed yearly
- Routine car maintenance, like tires and brakes
- Replacing a laptop or phone
- Gifts for holidays, birthdays and weddings
- Annual medical or dental costs you expect, such as glasses
For each item, write down two things: about how much it costs and the month it’s due. Last year’s bank and card statements are a good place to find both.
Do the math
For each item, divide the total cost by the number of months until it’s due. That’s how much to set aside each month.
A few examples:
- A $240 registration due in 12 months is $20 a month.
- $600 for holiday gifts in 10 months is $60 a month.
- A $1,200 laptop you’d like to replace in two years is $50 a month.
If a bill is due soon and you’re starting late, the monthly amount will be higher at first. That’s OK. Do what you can, and the next cycle will be easier. Add up all your monthly amounts to see your total, then add it to your budget like any other bill.
If the total feels like too much, that’s useful to know. You can trim the list, stretch a timeline, or start with the items that would hurt most if they caught you off guard. Progress over perfection.
Choose where the money lives
You have a couple of options, and either can work.
Separate accounts
Some people open a separate savings account for each fund, or one account just for sinking funds. Separate accounts make it easy to see what you have for each goal and harder to spend the money by accident. Before you open several, check for minimum balances or monthly fees.
Buckets within one account
Some banks and credit unions may let you split one savings account into labeled “buckets” or goals. You can also track buckets yourself with a simple spreadsheet or notebook. Write down how much of the balance belongs to each fund, and update it when you add or spend money.
Wherever you keep it, make the deposits automatic. A recurring transfer right after payday means you don’t have to remember. If you get a tax refund or bonus, you could use part of it to give your funds a head start.
Review it once a year
Your list will change. Insurance premiums go up or down. You may pay off a car or pick up a new hobby. Once a year, take a few minutes to:
- Compare what you saved with what each bill actually cost.
- Update amounts and due dates.
- Remove items you no longer need and add new ones.
- Adjust your automatic transfers to match.
A natural time to do this is right after a big annual bill or at the start of the year.
Your next step
Open last year’s bank or card statements and find three costs that came once or twice during the year. Write down each amount and due month, then divide to find your first monthly sinking fund amounts.