sinking funds


Welcome to Money March! If you have been keeping up, you have already learned BASIC BUDGETING, HOW TO TRACK EXPENSES, WHY YOU SHOULD TRACK EXPENSES, and HOW TO START SAVING MONEY. If you haven’t, make sure you check out all of these basic budgeting necessities to help gain control of YOUR money! And make sure to look for you FREE PRINTABLE SINKING FUNDS TRACKER!


Have you ever heard the term “Sinking Funds?” I hadn’t until just recently, although I DID understand the basic concept this whole time. Sinking funds are those things that you can save for because you know they will be coming up every year…birthdays, holiday gifts, and anniversaries are included, but so are car insurance payments, car maintenance (such as oil changes), doctor and vet copays, vacations, etc. To save for these things, you might start a sinking fund, meaning you save a certain amount every pay or every month that will be specifically for that expense.

Let me give you an example. Our car insurance is due 4 times a year, every 3 months. This works better for us than a monthly payment or an annual lump sum, which are our other options. Because we know that every January, April, July, and October we owe a few hundred dollars (usually the same amount every time), we put aside a little each month instead of looking for the full amount at the time. Our system has always just been to put some money in an envelope marked “Car Insurance” and keep it in a safe place, but there are actual accounts you can keep your sinking funds in to make things easier. A money market account or a separate checking or savings account will work, as you will be able to transfer the money quickly or even just write a check from that account.

Creating a sinking fund account will help you be prepared for expected things in your life!

Things that happen on a regular basis, like birthdays and holidays can be stressful if something else comes up and you don’t have the money you thought you might have at the time. Creating sinking funds for these categories will help you save a little every month and give you an appropriate amount of time to save what you need. At Christmas time, it never fails that one or both of our cars will start to act up and need something expensive fixed. That always puts a damper on my Christmas shopping. However, opening up a Christmas Club at our bank will allow me to budget how much I think I will need this year, and start saving little chunks. Most banks offer Christmas Clubs, which are a very convenient way to save money at a low interest rate.

Sinking funds are the easiest way to save. There are free printable trackers available online(CLICK HERE FOR A FREE PRINTABLE SINKING FUNDS TRACKER) and apps available on your phone to help you easily save for sinking funds.


The first step is to make sure you have a working budget each month and that you are tracking your expenses. When you are creating categories for those expenses, specify if it is for the holidays, car maintenance, birthdays, etc. as well as all the other categories you use. Add these totals up at the end of the month and keep track of how much you spent.

The next step is to take the total in the sinking fund category you want to save for and divide it by the number of months you need to save before you need to use that expense again. In the example of my car insurance, I will take the total and divide it by 3. In the case of holiday gifts, I will take the total of what I spent (decide if I need to cut back or use the same total) and divide it by 12, because it is yearly. My next monthly budget, I can then add a sinking funds category to plan ahead and immediately start saving that amount.

Having savings applied automatically into an account makes saving money so much easier. With my credit union, I am able to do all my transfers online as needed. I have a money market account available, as well as Christmas Club and other savings options that I can move my money into any time I want. I can choose to move the money around as much as I would like also. Some banks have restrictions about how many transfers you can make, how to access your money, what you minimum balance needs to be, and others. Make sure you find out what the rules are at your institution for each account (Learn more about Savings Accounts and Checking Accounts here).

You have several options for how to save for sinking funds.

Sinking funds are considered short term savings, so you don’t want to put your money into something that will penalize you for using it when you need it. Even using the envelope method like I do can make sure you have the money you need, when you need it. The advantages of having a specific account to hold your sinking funds is 1.) you do not have easy access to it and 2.) you might gain a small amount of interest on it, depending on the account. The advantage of keeping your sinking fund savings in cash is that you can add to it or withdraw from it as needed.


  1. Pay yourself first. You should always put aside money for savings before you pay any bills, but in this case, you should put your long term and larger short term savings first, and then pay for sinking funds. For example, if you are trying to save money for an emergency fund of 3-6 months worth of expenses, you will want to put the larger sum of savings into that before you put aside for sinking funds, which are usually a lot smaller in value and can be more flexible.
  2. Save spare cash and change. I know a lot of people don’t use cash these day, BUT if you are someone who budgets themselves a certain cash amount to be spent each week, this can be a good way to save extra money. Let’s say you give yourself an allowance of $40 a week for whatever you want to buy. Maybe this is your fun money or your personal care money, wherever it fits in your budget, maybe it just makes sense to carry cash for it and not overspend. Once the week is over, whatever is left over can go into your sinking fund. This will motivate you not only to not overspend with your budgeted cash, but also to spend even less as you try to save as much as possible.
  3. Use an app. There are apps out there that will automatically transfer money for you from your account into which ever sinking fund is most important to you at a time. Some of them may charge a small fee, but the convenience comes from setting your preferences and then letting the app do the work for you. You can even use apps where you get paid or reimbursed for actions (shopping, survey taking, etc.) to earn you some extra money and allow that to accumulate and use for sinking funds. I, personally, use the Ibotta app for groceries and online shopping. Ibotta allows you to earn money based on purchases you would make anyway, like an instant rebate. I let my rewards accumulate all year long and then use it to buy my granddaughter’s Christmas gifts guilt free! (If you are interested in checking this out, click on MY IBOTTA REFERRAL with the code YOSPXHP to sign up!) *(This is not sponsored by Ibotta, but I do get a small referral fee).

Whatever method you use, if you are getting serious about taking control of your finances, your sinking funds are an area you don’t want to ignore. Often, we let holidays or birthday or vacations be our excuse to blow our budget, when these things can easily be planned ahead. Even if you are only able to save some spare change you can be prepared for all of life’s expected expenses!

Please rate this if you found this article useful, follow my blog for more biweekly information, and leave me a comment! I would love to hear from you. Follow me on Pinterest, Instagram, and Facebook and look for my new podcasts on to listen to these articles on your favorite podcast platforms. XOXO


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