A simple way to stay ready for life’s “not-so-surprising” expenses
Ever get hit with a big bill you knew was coming—but still weren’t ready for? Think car repairs, annual insurance, or holiday shopping. That’s where a sinking fund comes in.
It’s one of the easiest ways to stop relying on credit cards, avoid last-minute stress, and finally feel in control of your money.
This article will break down what a sinking fund is, why you need one, and exactly how to start using them to stay financially prepared year-round.
What Is a Sinking Fund?
A sinking fund is money you set aside in advance for an upcoming expense. Unlike an emergency fund—which covers unexpected events—a sinking fund is for things you know are coming.
Think of it like pre-paying yourself over time so a future expense doesn’t wreck your budget.
Examples of Sinking Funds
Here are some common sinking fund categories:
- 🚗 Car repairs & maintenance
- 🏖️ Vacation or travel
- 🎁 Holiday gifts
- 🏡 Home repairs or upgrades
- 🎂 Birthdays or celebrations
- 💡 Annual bills or subscriptions (like insurance or Amazon Prime)
- 🛍️ Back-to-school shopping
Why Sinking Funds Work So Well
Sinking funds solve the “why does this feel like a surprise every year?” problem.
Instead of scrambling to come up with a few hundred dollars all at once, you break that goal into manageable chunks over time.
Example:
Need $600 for holiday gifts in December?
Start in June and save $100/month—or $25/week. Done.
It’s simple, stress-free, and saves you from swiping your credit card in a panic.
How to Start a Sinking Fund
Here’s how to set one up (without overcomplicating it):
Step 1: Pick Your Categories
Look ahead over the next 3–12 months. What big or irregular expenses are coming?
If you’re just starting out, choose 1–2 categories to focus on.
Step 2: Do the Math
Figure out how much you’ll need and when you’ll need it.
Then divide the total by the number of weeks or months left.
Example:
Back-to-school shopping = $300
You have 3 months → $100/month or ~$25/week
Step 3: Open a Separate Account (Optional but Helpful)
Keep your sinking fund money separate from your emergency fund and checking account so it doesn’t accidentally get spent.
💡 Try SoFi Checking & Savings – You can create separate “vaults” for each fund and automate transfers with no fees.
Step 4: Automate It
Set up a recurring transfer on payday so saving happens automatically.
For help, read:
👉 5 Ways to Automate Your Savings Without Thinking About It
Sinking Funds vs. Emergency Fund: What’s the Difference?
| Sinking Fund | Emergency Fund |
|---|---|
| For planned expenses | For unexpected expenses |
| You know the cost & timeline | You don’t know when or how much |
| Multiple categories | One lump sum (3–6 months of expenses) |
| Separate accounts or “buckets” | Typically in one dedicated account |
👉 Learn how to build your safety net: Emergency Fund Basics: How Much You Actually Need
How Many Sinking Funds Should You Have?
There’s no magic number—it depends on your goals and budget. You might start with just one (like holiday gifts), then expand as your income grows.
The key is to only commit to what you can realistically fund. Too many categories at once = overwhelm.
Where to Keep Your Sinking Funds
The best place to park your sinking fund is somewhere that’s:
- Safe (FDIC-insured)
- Separate from everyday spending
- Easily accessible when you need it
💡 Use a high-yield savings account like SoFi, or check out more options here:
👉 Where to Park Your Emergency Fund (Best Places to Keep It Safe)
Make Saving More Fun
✨ Bonus Tip: Name your sinking funds something personal and fun:
- “Greece 2025 🇬🇷”
- “Future Puppy 🐾”
- “New Car Fund 🚙”
Naming your goals keeps you motivated—and reminds you why you’re saving.
Create a visual tracker or savings dashboard in Canva to stay inspired.
Sinking Funds = Peace of Mind
Sinking funds give you financial peace by turning big expenses into bite-sized savings goals.
They’re easy to start, simple to manage, and seriously reduce money stress.
Start with one category this month—and give your future self a high five for planning ahead.
