This calculator gives estimates for education and planning. It is not investment, tax or legal advice; for decisions about your own situation, talk to a qualified financial professional.
A sinking fund is money you set aside, little by little, for an expense you know is coming: a yearly insurance premium, holiday gifts, car repairs, a vacation or new tires. Unlike an emergency fund, which covers the unexpected, a sinking fund covers the expected but irregular. It turns a big bill into a small monthly line in your budget.
How it works
For each goal:
monthly amount = amount needed ÷ months until it is due
Then add the goals together to get the total to set aside each month.
Example
| Goal | Amount | Months | Per month |
|---|---|---|---|
| Car insurance | $1,200 | 12 | $100.00 |
| Holiday gifts | $800 | 9 | $88.89 |
| Car repairs | $1,000 | 12 | $83.33 |
| Vacation | $3,000 | 10 | $300.00 |
| Total | $6,000 | $572.22 |
On $4,500 of monthly take-home pay, that is about 12.7%.
Which expenses belong in a sinking fund?
- Annual or semi-annual bills: insurance, property taxes if not escrowed, subscriptions paid yearly, professional dues.
- Seasonal costs: holidays, back-to-school, summer camp, heating oil.
- Predictable repairs and replacements: car maintenance and tires, home maintenance (often 1% of the home’s value a year), a new phone or laptop.
- Planned purchases and events: vacations, weddings, a furniture purchase.
Setting it up
- List every irregular expense from the past year; bank statements help.
- Estimate each amount and its due date.
- Divide, add, and set up an automatic transfer right after payday.
- Keep the money in a high-yield savings account, either one account per goal or one account with a simple spreadsheet tracking each balance.
Tips
- When a goal is reached and paid, restart it for next year.
- If the monthly total feels too high, push less urgent goals further out or reduce their amount.
- If you start late, the months left are fewer and the monthly amount rises; starting early is what makes sinking funds painless.
A sinking fund works best alongside an emergency fund of three to six months of expenses, so that a surprise does not empty the money set aside for planned costs.