You know those expenses that are “unexpected” but actually happen every year? Car service, school fees, holiday gifts, annual subscriptions. They’re not emergencies — we just don’t plan for them. That’s where sinking funds come in.
What is a sinking fund?
A sinking fund is simply money you set aside slowly for a specific future expense.
Examples:
Holiday gifts
School fees
Annual car insurance
Laptop upgrade
Travel
Instead of panicking when the bill arrives, you’ve been quietly saving for it all year.
Step 1: List your irregular expenses
Go through your calendar and bank statements:
When do you pay insurance?
When do school fees come?
When do you usually travel?
What devices will likely need replacing in the next 2–3 years?
Write each item down with its approximate cost and due date.
Step 2: Break them into monthly amounts
Example:
Car insurance in 10 months: $300.
$300 ÷ 10 = $30 per month.
School fees in 4 months: $800.
$800 ÷ 4 = $200 per month.
This is the amount you add to your sinking fund each month. A slim cash envelope system or multiple digital saving pockets can help keep each category separate.
See price on Amazon Cash Envelope Binder
Step 3: Decide your system – physical or digital
Options:
One bank account, tracked with a spreadsheet or notebook.
Multiple bank “spaces” or “vaults” (many digital banks offer this).
Cash envelopes at home for smaller costs like gifts or clothes.
In your notebook, you can draw boxes and label them: Car, School, Travel, Tech, etc.
Step 4: Automate whenever possible
If your income is regular enough, set automatic monthly transfers:
1st of the month: $30 → Car
1st of the month: $50 → Travel
1st of the month: $20 → Gifts
When the time comes, paying feels painless.
Combine sinking funds with the system in “How to Create a Monthly Money System That Runs Itself” for a full automation setup.
Step 5: Don’t mix sinking funds with emergency funds
They serve different purposes:
Emergency fund = “Oh no!” (unexpected)
Sinking fund = “Of course.” (predictable)
If you constantly borrow from sinking funds, it’s a sign your budget may be too tight, or your emergency fund needs topping up.
Step 6: Start small, prove it works
Choose two sinking funds to start with:
- The next big expense (e.g., school fees in 3 months).
- A “fun” one (e.g., travel, weekend trip).
Let your brain see that planning ahead doesn’t just protect you it also buys you enjoyable experiences without guilt.
You’ll see how nicely this article links with “Smart Budgeting in a High-Inflation Economy” and “Emergency Funds: How Much You Really Need and Why.”