Sinking funds: what they are and how much to save each month
A sinking fund is money you set aside a little at a time for a cost you can see coming, like a car insurance premium, holiday gifts or a trip. The math is one division per fund, and it spreads a large bill across the months before it's due.
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Key takeaways
- A sinking fund saves for a cost you know is coming. An emergency fund covers the ones you can't predict.
- Monthly amount = cost ÷ months until it's due. Six common funds in the example come to $505 a month.
- Keep the money in an insured savings account (FDIC-insured at a bank), either in separate accounts or one account you track by category.
What a sinking fund is
A sinking fund is savings set aside for one specific expense that you know is coming, even if it isn't due for months. You divide the cost by the months you have left and put that amount away each month. When the bill arrives, the money is already there.
The name comes from finance, where a company or government puts money aside on a schedule to pay off a debt by a set date. At home it works the same way. A $720 car insurance premium due every six months feels like an emergency if you forget about it. Saved at $120 a month, it's ready when the bill arrives.
Many budgets go wrong on costs that don't come every month. A monthly budget handles rent and groceries well, then the registration renewal, the dentist and a wedding gift land in the same month and the plan breaks. Sinking funds give those irregular costs a monthly line of their own.
Sinking funds examples
Any expense you can predict and that doesn't come every month is a candidate. Common examples include these.
- Car repairs and maintenance. Tires, brakes, oil changes and the routine repairs an older car tends to need. Look at what you spent on the car last year for a starting number.
- Gifts and holidays. Birthdays, weddings, graduations and end-of-year holidays. List the people and occasions and put a number next to each.
- Travel. A summer trip, a visit home or a friend's wedding out of state, with flights, lodging and spending money.
- Annual and semi-annual bills. Insurance paid every six or twelve months, vehicle registration, memberships and subscriptions that renew once a year.
- Home and pets. A new appliance, furniture, vet checkups and pet medication.
- Medical costs you can plan for. Glasses, dental cleanings and the deductible you expect to meet.
Start with three or four funds for the costs that have caught you off guard before. You can add more later. Too many small funds at the start can make the habit harder to keep.
How much to put in each sinking fund
For each fund, divide the cost by the number of months until it's due. For costs without a due date, like car repairs, use a yearly estimate and divide by 12.
| Fund | Cost | Months until due | Each month |
|---|---|---|---|
| Car insurance (six-month premium) | $720 | 6 | $720 ÷ 6 = $120 |
| Holiday gifts | $600 | 12 | $600 ÷ 12 = $50 |
| Car repairs and maintenance | $900 a year | 12 | $900 ÷ 12 = $75 |
| Summer trip | $1,800 | 9 | $1,800 ÷ 9 = $200 |
| Vehicle registration | $240 | 8 | $240 ÷ 8 = $30 |
| Annual subscription renewal | $120 | 4 | $120 ÷ 4 = $30 |
| Total | $4,380 | None | $505 |
Together the six funds come to $505 a month for $4,380 of costs. If you're paid every two weeks, that's $505 × 12 ÷ 26, about $233.08 a paycheck. Dividing the monthly total by two would set aside $252.50 a paycheck, more than you need, because a year has 26 biweekly paychecks (dividing by two assumes 24).
If you're starting late
Subtract what you already have, then divide by the months left. Say the $720 insurance bill is due in four months and you've saved $300. You need ($720 − $300) ÷ 4 = $105 a month. When the total for all your funds is more than you can manage, push a flexible cost later (a smaller trip, or the same trip in the fall) rather than skipping a fixed bill like insurance.
Where to keep sinking funds
Sinking fund money needs to be safe and easy to reach on a known date, so a savings or money market deposit account is a common choice. FDIC deposit insurance covers checking accounts, savings accounts, money market deposit accounts and certificates of deposit at insured banks, up to $250,000 per depositor, per FDIC-insured bank, for each account ownership category. Stocks, mutual funds and crypto assets are not covered. The details are on the FDIC's page understanding deposit insurance (fdic.gov).
Joint accounts are a separate ownership category from accounts in one person's name, according to the same FDIC page. That matters mostly for large balances, but it's worth knowing if one of you holds most of the household's savings at a single bank.
Separate accounts or one account
- Separate accounts. Some banks let you open more than one savings account and give each a name, such as Car or Gifts. Each balance shows what's in that fund, and it's harder to borrow from the trip to cover the car. The cost is more accounts to open and keep track of.
- One account tracked by category. All the funds live in one savings account and you keep a list or spreadsheet of how much belongs to each. It's simpler to set up, but the balance alone won't tell you what's spoken for. Update the list every time money goes in or out.
Either way, keep sinking funds out of your everyday checking account, so the gift money doesn't quietly turn into groceries. An automatic transfer on payday makes the habit easier to keep.
Sinking funds vs an emergency fund
The CFPB describes an emergency fund as a cash reserve set aside for unplanned expenses or financial emergencies, such as car repairs, home repairs, medical bills or a loss of income, in its guide to building an emergency fund (consumerfinance.gov). A sinking fund is for costs you can plan. For sizing the emergency side, see how much to keep in an emergency fund.
| Sinking fund | Emergency fund | |
|---|---|---|
| What it's for | A cost you expect, like gifts or a premium | A cost you can't predict, like a job loss |
| How much | The cost of that one item | Enough to get you through a rough stretch |
| When you use it | On a date you know | Whenever an emergency happens |
| After you use it | Start saving for the next one | Rebuild it as soon as you can |
Car repairs can belong to either fund. Routine maintenance and the repairs you expect every year belong in a sinking fund. A sudden transmission failure is what the emergency fund is for. Keeping the two apart means a predictable bill doesn't use up the money meant for a real emergency, and a real emergency doesn't wipe out the vacation.
Sinking funds for couples
Big irregular costs are where couples often find they had different numbers in mind, like how much to spend on each family's holiday gifts, what the trip should cost or who pays the car registration. Sinking funds turn those into numbers you agree on months ahead, instead of a surprise on the credit card statement.
A simple rule is shared funds for shared costs and personal funds for personal ones. Joint travel, home repairs, the car you both drive and gifts from both of you go in shared funds. Your own hobby, gifts you give on your own and anything only one of you wants go in personal funds that each of you controls.
- Decide each shared fund's amount together, then decide how much each of you puts in. Some couples contribute equally. Others contribute in proportion to income, the same way they share bills.
- Keep shared funds where you can both see them, in a joint savings account or in one account with a shared list of categories.
- Leave personal funds personal. Each of you decides your own gift budget without checking in.
How you hold shared savings depends on how you've set up your accounts. If you're still deciding, joint vs separate accounts walks through the main setups and what each one means for shared costs.
Can we list the big costs coming up this year and decide which ones we're saving for together?
Shared and personal funds in one view
Once your funds live in a few accounts, the hard part is seeing the shared ones together without giving up what's personal.
Common questions
What is a sinking fund?
A sinking fund is money you save a little at a time for a specific cost you know is coming, like a car insurance premium, holiday gifts or a trip. You divide the cost by the months until it's due and set that amount aside each month.
How do I calculate a sinking fund?
Divide the cost by the number of months until it's due. A $1,800 trip in nine months needs $200 a month. If you've already saved some, subtract it first: $720 due in four months with $300 saved needs $105 a month.
What is the difference between a sinking fund and an emergency fund?
A sinking fund pays for a cost you can predict, on a date you know. An emergency fund covers costs you can't predict, like a job loss or a sudden medical bill. Keeping them separate stops planned spending from eating into your emergency money.
Should sinking funds be in separate accounts?
It depends on what you'll keep up with. Separate accounts show each fund's balance at a glance and make it harder to borrow between funds. One account with a list by category is simpler to set up but needs updating every time money moves. Either works if the money stays out of everyday checking.
See shared and personal savings side by side
The Free plan works on your own, so you can start with just your accounts. The Couple plan adds your partner, and each account is Private, Shared or Balance only.
Budgeting is free, forever · No card to start · Invite your partner when you're ready, on the Couple plan · Founding prices are open
General education, not financial, legal or tax advice. Your situation may differ.
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Every guide is written by Miyo's founder, dated, and checked against government sources such as the FDIC, CFPB and IRS wherever it states a money fact. Product claims describe only what Miyo does today. If something here is out of date, tell us. Contact support.