Sinking funds: what they are and how to run them
A sinking fund is money you set aside in small, regular amounts for a bill you know is coming, such as car insurance, gifts or a repair. Divide the expense by the months until it is due, save that amount each month, and the bill never needs to come out of one paycheck.
By Swapnanil Dhol. Last updated
How to set up a sinking fund
- List the expenses you know are coming. Write down irregular costs such as insurance, registration, gifts, travel or a planned purchase.
- Add an amount and a due date. Estimate each cost and note the month it is due.
- Divide by the months left. Divide each amount by the months until it is due to get a monthly figure.
- Add the monthly figures together. The total is what you set aside each month across all sinking funds.
- Track each fund separately. Keep one goal per expense so you can see which ones are on track.
What is a sinking fund?
It is a pot of money with one job and a due date. Unlike a general savings balance, each sinking fund has a target, a deadline and a purpose, so you know what the money is for and when it will be used.
How is a sinking fund different from an emergency fund?
A sinking fund covers expenses you can predict. An emergency fund covers the ones you cannot. Both are worth having, and they work well side by side. See how to build an emergency fund.
How much should I put in a sinking fund each month?
Divide the expense by the months until it is due. A $900 insurance premium due in 9 months needs $100 a month.
| Expense | Amount | Due in | Per month |
|---|---|---|---|
| Car registration | $240 | 8 months | $30 |
| Holiday gifts | $480 | 12 months | $40 |
| Insurance premium | $900 | 9 months | $100 |
| New laptop | $1,200 | 24 months | $50 |
| Total | $220 |
What are good sinking fund categories?
- Insurance, taxes and annual subscriptions
- Car registration, servicing and repairs
- Gifts, holidays and birthdays
- Travel and weekends away
- Planned purchases such as a laptop or furniture
- Medical, dental and vision costs you can predict
Where do I keep sinking fund money?
Many people keep it in an ordinary savings account and track each fund separately in an app. The tracking matters more than the container: you need to know how much belongs to which expense.
How do I run sinking funds in Goaley?
Goaley: Savings Goal Tracker treats each expense as its own goal with a target and a deadline, then plans the contributions. Create one goal per expense, pick weekly, every-two-weeks or monthly saving, and check the schedule to see what is due next. Running several goals at once is part of Goaley Pro. Try the numbers in the savings goal calculator, or see the savings plan.
Give each expense its own goal
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