What Are Sinking Funds And How To Set Them Up

Have you ever had a time when you needed or wanted to make a big purchase and you realized that you didn’t have the money readily available or would need to dig into your emergency fund or even worse buy it on credit?!

If that has happened to you then you may want to keep reading as I’m talking about sinking funds in this blog post.

Sinking funds are something I’d heard about but didn’t really know anything about and honestly didn’t think I needed. Once I learned more about them and had a situation where a sinking fund would have been helpful (buying a new car after a car accident) I started working on a few myself.

I’ve been working on my sinking funds for a few months now and wanted to share what I’ve learned and my experience with you.

Woman counting money that will be put into her sinking fund.
(I am not a financial expert. All information is based on my own personal experience and research. This information is not meant to be financial advice and is just for educational purposes. This post includes some affiliate links. Should you click an affiliate link and make a purchase I may receive a small commission at no extra cost to you.)

What is a sinking fund?

To start off, let’s talk about what a sinking fund is. Simply put, it’s saving a set amount of money regularly, this could be each month or paycheck, to prepare for an expected and planned non-typical purchase you anticipate. The purchase is typically a large one but doesn’t always have to be. 

Why do I need a sinking fund?

Unless you have a large amount of savings and can easily cash-flow purchases you may want to consider having a sinking fund. Imagine that you need to pay for an expensive car repair, or replace the roof of your house. Where is that money coming from? Without money set aside for that, you’d have to look at other sources such as your emergency fund, borrowing from friends or family, or a credit card. Not the best option.

You may be thinking that your emergency fund can cover that and while it can it doesn’t have to. Emergency funds are meant to cover unexpected expenses that you have no control over, and sinking funds cover anticipated ones.

What would I use a sinking fund for?

Glad you asked. Sinking funds are used for future expected or anticipated expenses that could put a dent in your finances if not planned for. These can be categories like
  • Car maintenance and repairs
  • Home repairs
  • Home renovations
  • Party/event
  • Gifts (Christmas, birthday, anniversary)
  • Property taxes if you don’t have an escrow account
  • Back-to-school supplies
  • Travel/vacations
And the list can go on and on. 

Depending on your situation you may want different or additional sinking funds categories than the ones listed above like medical, professional, development, or HOA.

How do I start a sinking fund?

Believe me, it’s easier than you think. I’m going to share how I got my sinking funds started.

Determine your sinking funds

I began by deciding what I wanted to save for. Right now I have three sinking funds
  • Home repairs - I want to have some money set aside so I can easily cover anything that needs fixing on my house.
  • Vacation - I typically cash flow my vacations out of my savings but I want to be more intentional with this portion of my budget
  • Car - this is set aside for repairs or replacement of my car. I won’t need to replace my car for several years so I thought it would be good to start saving now so I can buy the next car entirely with cash.

Decide on the amount for each fund

Next, I determined how much I wanted to save and within what timeframe. Then I divided that amount by the number of months I have to save. Depending on how much time you have to reach your amount you may want to save each week versus each month.

Select where you will keep the fund

I kept it simple and have all of my funds in my high-yield savings account but I use a budgeting app to track each fund separately.

person counting money to put into their sinking funds.

How do I track my sinking funds?

You’ll want to use your budget to track this. As I mentioned, I use a budgeting app to track my sinking funds. In the budgeting app, I can have each fund as a line item noting the total amount for each. The total amount updates when I transfer money to that account.

If you don’t want to bother with an app, you can track your sinking funds using pen and paper, an excel spreadsheet, or a printable tracker like the one I created.

Do you have a sinking fund? If not, do you think you will start one now?


  1. This is such great information! I love having my sinking funds so I dont panic when I have a big once a year expense like Car insurance or an annual subscription. Thanks for sharing and I hope that people will jump on board with sinking funds!


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