Sinking Funds Explained: How to Save for Irregular Expenses
1/16/2026
Sinking funds are money you save monthly for expenses you know are coming but don't happen every month. Instead of being blindsided by annual insurance premiums, holiday gifts, or car repairs, you set aside a little each month so the money is ready when you need it.
This simple strategy is the difference between budgets that work and budgets that blow up every time an "unexpected" expense hits—even though it was completely predictable.
What Are Sinking Funds?
A sinking fund is a savings category for a specific, planned expense that doesn't occur monthly.
The concept is simple:
- Christmas comes every December (not a surprise)
- Car repairs are inevitable (not a surprise)
- Annual subscriptions renew yearly (not a surprise)
Yet people treat these as "unexpected" expenses that destroy their budgets. Sinking funds prevent this by spreading the cost across months.
Example: Holiday Gifts
Without sinking fund:
- December arrives
- You need $600 for gifts
- No money saved
- Charge it to credit card
- Pay interest for months
With sinking fund:
- January-November: Save $55/month ($605)
- December arrives
- You have $600+ ready
- Pay cash, no debt
- Enjoy stress-free holidays
That's the power of sinking funds.
Sinking Funds vs Emergency Funds
These are different and should be kept separate:
| Factor | Sinking Fund | Emergency Fund |
|---|---|---|
| Purpose | Planned, expected expenses | Unexpected, unplanned expenses |
| Examples | Holiday gifts, car insurance, vacation | Job loss, medical emergency, major repair |
| Predictability | You know it's coming | You don't know if/when |
| Replenishment | Ongoing, continuous | After use only |
| Usage | Regular, planned | Hopefully rare |
Why this matters:
If you raid your emergency fund for holiday gifts, you won't have it when a true emergency hits. Sinking funds protect your emergency fund by covering predictable expenses separately.
Common Sinking Fund Categories
Essential Sinking Funds
These cover expenses that will definitely happen:
Car Expenses
- Maintenance (oil changes, tires, brakes)
- Registration and inspection
- Repairs (inevitable on any car)
- Suggested: $100-200/month
Medical Expenses
- Copays and deductibles
- Prescriptions
- Dental (cleanings, potential work)
- Vision (exams, glasses/contacts)
- Suggested: $50-150/month
Annual Insurance Premiums
- Car insurance (if paid semi-annually or annually)
- Renters/homeowners insurance
- Life insurance
- Suggested: Total annual ÷ 12
Home Maintenance
- Repairs (HVAC, plumbing, appliances)
- General upkeep
- Suggested: 1-2% of home value annually ÷ 12
Lifestyle Sinking Funds
These cover predictable wants:
Holiday Gifts
- Christmas/Hanukkah
- Birthdays
- Mother's/Father's Day
- Weddings
- Suggested: Estimate annual total ÷ 12
Vacation
- Travel costs
- Accommodations
- Activities
- Suggested: Based on your travel goals
Clothing
- Seasonal wardrobe updates
- Professional attire
- Kids' growing needs
- Suggested: Based on past spending
Subscriptions
- Annual software
- Streaming services (if paid annually)
- Memberships
- Suggested: List all, total ÷ 12
Specialized Sinking Funds
Based on your life situation:
Pet Expenses
- Vet visits
- Grooming
- Supplies
- Pet insurance
Kids
- Back-to-school supplies
- Activities and sports
- Camp
- College savings (separate long-term)
Technology
- Phone replacement
- Computer replacement
- Software upgrades
Professional Development
- Courses and certifications
- Conference attendance
- Professional memberships
How to Calculate Sinking Fund Amounts
For Known Costs
Formula: Total Cost ÷ Months Until Needed = Monthly Contribution
Examples:
| Expense | Cost | Months | Monthly Save |
|---|---|---|---|
| Car insurance (annual) | $1,200 | 12 | $100 |
| Holiday gifts | $800 | 12 | $67 |
| Vacation | $3,000 | 12 | $250 |
| Car registration | $150 | 12 | $12.50 |
For Variable/Estimated Costs
Formula: (Annual Estimate + 15% Buffer) ÷ 12 = Monthly Contribution
Examples:
| Expense | Est. Annual | +15% Buffer | Monthly Save |
|---|---|---|---|
| Car repairs | $1,000 | $1,150 | $96 |
| Medical | $800 | $920 | $77 |
| Home repairs | $2,000 | $2,300 | $192 |
| Clothing | $600 | $690 | $58 |
The Complete Calculation
Step 1: List all irregular expenses Step 2: Estimate annual cost for each Step 3: Add 10-20% buffer for variable expenses Step 4: Divide by 12 for monthly contribution Step 5: Total all categories for monthly sinking fund budget
Sample Sinking Fund Setup
Moderate Income Household
| Category | Annual Cost | Monthly Save |
|---|---|---|
| Car maintenance | $1,200 | $100 |
| Car registration/tax | $200 | $17 |
| Medical | $600 | $50 |
| Holiday gifts | $600 | $50 |
| Birthdays | $300 | $25 |
| Annual subscriptions | $360 | $30 |
| Clothing | $600 | $50 |
| Home repairs | $1,000 | $83 |
| Total | $4,860 | $405 |
This household saves $405/month across sinking funds, preventing $4,860 in "surprise" expenses from derailing their budget.
Where to Keep Sinking Funds
Option 1: Single Account with Tracking
Keep all sinking funds in one high-yield savings account. Track individual balances in a spreadsheet or app.
Pros:
- Simple (one account)
- Higher interest (full balance earns)
- Easy transfers
Cons:
- Requires manual tracking
- Easy to "borrow" between categories
How to track:
| Category | Starting | Add | Spend | Current |
|---|---|---|---|---|
| Car | $450 | $100 | $0 | $550 |
| Medical | $200 | $50 | -$75 | $175 |
| Holidays | $300 | $67 | $0 | $367 |
| Total | $1,092 |
Update monthly or after each transaction.
Option 2: Multiple Sub-Accounts
Some banks offer "buckets" or sub-accounts within savings:
Banks with sub-accounts:
- Ally Bank (Savings Buckets)
- Capital One 360 (savings accounts)
- SoFi (Vaults)
Pros:
- Visual separation
- Automatic tracking
- Harder to accidentally spend
Cons:
- May require minimum balances
- More accounts to manage
Option 3: Envelope System (Physical)
For cash-based budgeters, physical envelopes work too:
Pros:
- Tangible, visual
- Simple
- No technology needed
Cons:
- No interest earned
- Cash can be lost/stolen
- Not ideal for large amounts
How to Start Sinking Funds
Week 1: Identify Your Categories
- Review last 12 months of spending
- Identify every non-monthly expense
- Group into categories
- Estimate annual cost for each
Week 2: Calculate and Prioritize
- Calculate monthly contribution for each
- Total all contributions
- Compare to available budget
- If too much, prioritize essential categories first
Week 3: Set Up Accounts
- Choose tracking method (spreadsheet, app, sub-accounts)
- Open high-yield savings if needed
- Set up automatic transfers
- Create tracking system
Week 4: Automate
- Set up automatic transfer on payday
- Allocate to categories (even if just tracking)
- Review and adjust monthly
Managing Sinking Funds
When You Spend from a Sinking Fund
- Transfer money from sinking fund to checking
- Pay the expense
- Update your tracking
- Continue monthly contributions
When a Category Runs Out
If you need more than you've saved:
- Check if other categories have excess
- "Borrow" from overfunded categories (not emergency fund!)
- Adjust future contributions if consistently underfunded
- Cover the gap from regular budget (if small)
When a Category Overflows
If you've saved more than needed:
- Keep it! Next year's expenses may be higher
- Or reallocate to underfunded categories
- Or direct excess to debt/investments
- Review estimates and adjust if consistently over
Monthly Review
Each month, review your sinking funds:
- Are contributions on track?
- Any categories over or under?
- Any new irregular expenses to add?
- Any categories no longer needed?
Common Sinking Fund Mistakes
1. Too Many Categories
Starting with 20 sinking funds is overwhelming. Start with 5-6 essential ones, add more gradually.
2. Unrealistic Estimates
Base estimates on actual past spending, not wishful thinking. Track for a year before optimizing.
3. Not Treating It as Sacred
Sinking fund money has a purpose. Don't raid it for regular expenses.
4. Skipping Small Categories
"$12/month for registration isn't worth tracking." Wrong—it's $144/year that won't surprise you.
5. Mixing with Emergency Fund
Keep sinking funds separate from emergency savings. Different purposes, different accounts.
Sinking Funds in Your Budget
Fitting Sinking Funds into 50/30/20
Sinking funds can live in multiple categories:
| Sinking Fund | Budget Category |
|---|---|
| Car insurance | 50% (Needs) |
| Car repairs | 50% (Needs) |
| Medical | 50% (Needs) |
| Vacation | 30% (Wants) |
| Holiday gifts | 30% (Wants) |
| Clothing (basic) | 50% (Needs) |
| Clothing (fashion) | 30% (Wants) |
Sinking Funds in Zero-Based Budget
In zero-based budgeting, sinking funds get their own budget lines:
| Category | Budget |
|---|---|
| Car Sinking Fund | $100 |
| Medical Sinking Fund | $75 |
| Holiday Sinking Fund | $60 |
| ... | ... |
They're assigned to the "savings" portion of your budget but for specific purposes.
Sinking Funds vs Savings Goals
| Factor | Sinking Fund | Savings Goal |
|---|---|---|
| Necessity | Required expense | Optional want |
| Certainty | Will happen | Might happen |
| Timeline | Usually 1 year or less | Can be years |
| Examples | Car repair, insurance | Vacation, new car |
| Flexibility | Must fund fully | Can adjust |
Both are valuable. Sinking funds prevent budget disasters; savings goals improve life quality.
Your Action Plan
Today:
- List 5 irregular expenses from last year
- Estimate annual cost for each
This Week:
- Calculate monthly contributions
- Open a high-yield savings account (if needed)
- Set up automatic transfer
This Month:
- Track all irregular expenses
- Add new categories as you identify them
- Create a tracking spreadsheet or use our template
Ongoing:
- Review sinking funds monthly
- Adjust estimates based on actual spending
- Celebrate when "surprise" expenses are easily covered!
Ready to set up your sinking funds?
Track all your savings goals—including sinking funds—with our free savings tracker template. Set targets, log contributions, and never be surprised by predictable expenses again.
Need to create a budget that includes sinking funds? Start with our complete budgeting guide or download a budget template.
The expenses are coming whether you're ready or not. With sinking funds, you'll be ready.
Frequently Asked Questions
What is a sinking fund?
A sinking fund is money you set aside monthly for a known, planned expense that doesn't occur every month. Instead of being surprised by annual insurance premiums, holiday gifts, or car repairs, you save a portion each month so the money is ready when the expense hits.
What is the difference between a sinking fund and an emergency fund?
An emergency fund is for unexpected, unplanned expenses (job loss, medical emergency). A sinking fund is for expected, planned expenses that just don't happen monthly (annual subscriptions, holiday gifts, car maintenance). Emergency funds should never be touched for predictable costs.
What are examples of sinking funds?
Common sinking funds include: car maintenance/repairs, holiday gifts, annual subscriptions, vacation, property taxes, insurance premiums, medical expenses, home repairs, clothing, birthdays, back-to-school costs, and pet expenses. Any irregular but predictable expense can be a sinking fund.
How do I calculate sinking fund amounts?
Divide the total expected cost by the number of months until needed. For example: $1,200 annual car insurance ÷ 12 months = $100/month sinking fund. For variable expenses, estimate annual cost based on past spending, add 10-20% buffer, then divide by 12.
How many sinking funds should I have?
Most people benefit from 5-10 sinking funds covering their major irregular expenses. Too few and you'll miss important categories; too many becomes complicated. Start with 3-5 essential ones (car, medical, holidays, home, annual subscriptions), then add more as needed.
Where do I keep sinking funds?
Keep sinking funds in a high-yield savings account, either in one account with tracking (spreadsheet or app) or in multiple sub-accounts at banks that offer them (Ally, Capital One). Don't keep them in checking—too easy to accidentally spend.
What if I can't afford all my sinking funds?
Prioritize: 1) Truly necessary expenses (car insurance, medical), 2) Expenses that cause debt if unprepared (holiday gifts), 3) Nice-to-have savings (vacation). Even partially funding sinking funds reduces the budget shock when expenses hit.
Are sinking funds the same as savings goals?
They're similar but different in purpose. Sinking funds are for expenses you know will happen (car repair is inevitable). Savings goals are for discretionary wants (vacation is optional). Both involve setting aside money monthly, but sinking funds are more essential to budget stability.