What is a sinking fund?

Money set aside gradually for a known future expense — car servicing, insurance renewal, Christmas, a replacement appliance. Unlike an emergency fund, which covers genuine surprises, a sinking fund covers costs you already know are coming.

What is the difference between a sinking fund and an emergency fund?

An emergency fund covers things you cannot predict, such as job loss or an urgent medical bill. A sinking fund covers things you can predict and have chosen to spread out. Most households need both, and having sinking funds stops the emergency fund being raided for things that were never emergencies.

What sinking funds should I have?

One for each predictable irregular cost that keeps catching you out. The common ones are car maintenance, insurance renewals, Christmas and gifts, holidays, home repairs, and pet care.

How do I calculate a sinking fund?

Divide the total you need by the number of months until you need it, subtracting anything already saved. For a $1,200 cost in twelve months with $200 saved, that is $1,000 divided by 12, or about $83 a month.

Sinking funds

Most 'unexpected' expenses are not unexpected. A sinking fund is how you stop pretending otherwise.

Last updated: 2026-08-07

The car needs servicing every year. Insurance renews on the same date it renewed last year. Christmas happens in December. None of these are surprises — but a great many people treat them as surprises and absorb them on a credit card.

A sinking fund converts a lump into a monthly number small enough to fit inside a budget. $1,200 of car maintenance is alarming. $100 a month is a line item.

Not the same as an emergency fund

An emergency fund is for what you cannot predict: job loss, an urgent repair, a medical bill. A sinking fund is for what you can. Keeping them separate matters, because the most common way an emergency fund dies is being spent on things that were never emergencies.

Worth having

Car — servicing, tyres, registration, the repair you know is coming.
Insurance renewals — especially anything billed annually.
Christmas and gifts — start in January and December stops hurting.
Home repairs — appliances have a lifespan, and it is shorter than you think.
Pets — routine care is predictable. The emergency vet bill is what the emergency fund is for.

The maths

Amount still needed, divided by months available. That is the whole calculation, and it deliberately assumes no interest — sinking funds are short-term and usually held in cash, so building in an assumed return would make the target look easier than it is.

The calculator does it for you.

Where people go wrong

Starting too many at once. Six funds at $80 each is $480 a month, which for most people is not available. Start with the one that has hurt you most recently, get it running, then add the next.

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