How sinking funds work
A sinking fund is money you put aside a little at a time for a cost you already know is coming. Car insurance every six months, holiday gifts, a yearly subscription, school fees. None of them are surprises, but they still wreck a month when they show up all at once, and a lot of them end up on a credit card.
The math for each fund is simple:
The calculator counts months from this month to the month the bill is due. If it's due this month, the whole remaining amount shows as this month's number. For bills that repeat, it also shows a second number: the cost divided by how often it comes around. That's what the fund needs once you've caught up.
A worked example
Say these four bills are coming up:
- Car insurance: $900, due in 6 months, nothing saved. $900 ÷ 6 = $150 a month.
- Holiday gifts: $600, due in 2 months, $150 already saved. $450 ÷ 2 = $225 a month.
- Car registration: $180, due in 10 months. $180 ÷ 10 = $18 a month.
- Vet checkup: $250, one time, due in 4 months. $250 ÷ 4 = $62.50 a month.
That's $455.50 a month for now. It looks like a lot, but most of it is the holiday fund catching up. After the holidays and the vet visit, the three yearly bills only need $75 + $50 + $15 = $140 a month. Click Load example above to see the same numbers with dates filled in.
Tips that make it easier
- Go through last year's bank statements. Anything that showed up once or twice is a candidate.
- Round the amounts up. Prices tend to go up, and spare money in a fund isn't a problem.
- If the monthly total is more than you can save right now, start with the bills that are due soonest.
- Treat the monthly total like any other bill in your budget, so it gets paid before spending.
Paying off debt at the same time? The debt-free date calculator shows how much faster you're done with a bit extra each month, and our Complete Set has all three planners for $22.
FAQ
How do I calculate how much to put in a sinking fund?
Take the cost, subtract what you've saved for it, and divide by the months until it's due. $900 due in 6 months with nothing saved is $150 a month.
What's the difference between a sinking fund and an emergency fund?
A sinking fund covers a cost you know is coming. An emergency fund covers things you can't plan for. Keeping them apart stops planned bills from eating your emergency money.
Where should I keep sinking fund money?
Usually a separate savings account, so it isn't mixed with spending money. Some banks let you split one account into labeled buckets. A spreadsheet that tracks each fund's balance works too.
Why is my monthly total higher now than later?
A bill that's due soon has fewer months to save for, so its monthly amount is high. Once it's paid, it only needs its cost divided by how often it repeats.