Sinking Funds: Budget for Irregular Expenses

Sinking funds set aside money monthly for irregular expenses you know are coming. They turn unpredictable large expenses into predictable small ones.

What Sinking Funds Cover

Annual expenses: Car insurance, property tax, holiday gifts, annual subscriptions, membership fees.

Periodic maintenance: Car repairs, home maintenance, appliance replacement, medical/dental work.

Planned large purchases: Vacations, furniture, electronics, home projects.

How Sinking Funds Work

Identify expenses that occur less frequently than monthly. Estimate annual cost. Divide by 12. Save that amount monthly.

Example: Car insurance costs $1,200 annually. Set aside $100 monthly. When the bill arrives, the money is ready.

Sinking Fund vs Emergency Fund

Emergency funds handle unexpected expenses: job loss, medical emergencies, surprise repairs.

Sinking funds handle expected but irregular expenses: you know car insurance is coming, you just do not pay it monthly.

Mixing them creates problems. If your car insurance depletes your emergency fund, you have no cushion for actual emergencies.

Common Sinking Fund Categories

Car maintenance and repairs, home maintenance and repairs, annual insurance premiums, holiday and gift spending, vacation fund, medical and dental expenses, pet expenses, clothing and personal items, electronics replacement, professional development.

The right categories depend on your life. Track what catches you off guard, then build a sinking fund for it.

Implementation

Same account, tracked separately: Keep sinking funds in your savings account but track each category's balance in your budget software.

Separate sub-accounts: Some banks allow multiple savings accounts. Each sinking fund gets its own account.

Envelope method: Treat each sinking fund as a virtual envelope with a running balance.