Sinking Fund

Personal Finance

A sinking fund is money you set aside regularly for a known, planned future expense — annual insurance premiums, holiday gifts, car maintenance, a wedding, property tax bills. Unlike an emergency fund (for unexpected expenses), a sinking fund covers expenses you know are coming. The approach: divide the total expected cost by the number of months until you need it, then transfer that amount monthly to a dedicated savings account. Sinking funds smooth out lumpy expenses, prevent credit card debt from holidays or insurance bills, and remove financial stress. Multiple parallel sinking funds for different goals work well in high-yield savings.