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When I first heard of sinking funds, I have to admit that I was a bit confused. I was talking about money with a couple acquaintances who both seemed to be on the same page, but I was lost in the clouds.

My mind tried to stay engaged in the conversation, but kept asking questions.

Luckily, sinking funds aren’t nearly as confusing as I thought.

After doing some research and creating my own sinking fund spreadsheet, I realized how great they can be. Sinking funds can help you create financial goals, save money every month to reach your goals, and and help you manage unexpected expenses. 

In this article, I’ll explain what sinking funds are, why they’re important, and how you can start setting them up for yourself. You can even use my sinking fund spreadsheet to track all of your goals in one place.

The video below shows you how to make your own. You can also buy one that’s already set up for just $10 right here.

I’ll also provide some examples of sinking funds and offer tips for successfully managing them.

By the end of this post, you’ll have a better understanding of how to create sinking funds for beginners and how they can help you achieve financial stability.

Let’s dive in!

What is a Sinking Fund?

To put it simply, a sinking fund is a separate savings account that you set up specifically for a particular expense or goal and add money to it every month. Unlike an emergency fund, which is meant to cover unexpected expenses, a sinking fund is a proactive way of preparing for expenses that you know are coming up in the future.

You can also use a sinking fund as a way to save money for a big purchase like a car, wedding dress, honeymoon, or a down payment for a new house. 

The best way to set up a sinking fund is to add it as a budget category expense and transfer that money to your savings account every month.

For example, let’s say you know that you’re going to need a new car in a couple of years. Rather than relying on credit to finance the purchase, you could start a new car sinking fund and set aside money each month towards the cost of a new car.

Even saving as little as $50 a month makes a big difference in the long run. Transferring small amounts to savings is one way we learned to budget on a low income. It’s how we managed to build most of our savings to spend 14 days in Ireland for our 5 year anniversary.

Sinking funds can be used for a variety of expenses, both big and small. Some good starting sinking fund categories include:

By setting up sinking funds for these expenses, you can avoid having to dip into your emergency fund or put the expense on a credit card. Plus, having a sinking fund in place can help you stay on track with your overall financial goals.

Differences Between a Sinking Fund and Emergency Fund

While both sinking funds and emergency funds are types of savings accounts, there are some key differences between the two.

An emergency fund is typically a larger savings account that’s meant to cover unexpected expenses or emergencies, such as a sudden job loss, medical emergency, or car repair. The general rule of thumb is to have enough money in your emergency fund to cover 3-6 months’ worth of living expenses.

The amount you keep in your emergency fund really depends on your family and financial situation. If you have a big family and own a home, you’re going to need a bigger emergency fund than a single person who rents an apartment.

On the other hand, a sinking fund is a smaller savings account that’s meant to cover a specific expense or goal that you know is coming up in the future. 

And if you have multiple sinking funds for different financial goals, you can keep them all in the same savings account. 

The amount you contribute to a sinking fund each month will depend on the cost of the expense and how far in advance you’re saving for it.

For example, when we went to Ireland for our 5 year anniversary, we knew we wanted to save at least $5,000. That meant we needed to save at least $84 a month to reach our savings goal.

We started with $50 a month and added more with tax returns and extra paychecks. In the end, we saved $7,000 with small contributions to our sinking funds.

One way to think of the difference between the two is that emergency funds are for the unexpected, while sinking funds are for the expected. By having both types of savings accounts in place, you can be better prepared for both the expected and unexpected expenses that come your way.

Benefits of Using Sinking Funds

sinking funds for beginners

Sinking funds can be a lifesaver when it comes to managing your finances and preparing for unexpected expenses. Here are just a few reasons why you should jump on the sinking fund bandwagon:

Avoid Reliance on Credit Cards

Picture this: your car breaks down on the side of the road and you need a pricey repair. 

Take a minute to think of the stress and panic as you do the mental gymnastics trying to think how you’re going to pay for whatever the heck might be broken.

But then you remember you created a sinking fund for car repairs and maintenance. 

If you don’t have a sinking fund, you may have to rely on credit cards or loans to pay for the repairs. But with a sinking fund set up specifically for car repairs, you’ll have the funds you need without the pesky debt. So long, credit card debt!

Stress Less, Live More

Having a sinking fund for specific expenses can help alleviate financial stress and give you peace of mind. 

You can relax knowing that you have the money set aside for unexpected costs, like a broken washing machine or emergency dental work. I love knowing we have a designated amount of money set aside to cover these costs. Plus, creating a vacation fund gives us permission to spend our vacation sinking fund without guilt or worrying about adding debt.

It makes vacations a lot more fun. 

Stress less, live more – that’s what sinking funds are all about!

Helps You Reach Your Financial Goals Faster

Sinking funds are a fantastic way to save for big ticket items like vacations or a down payment on a house. 

Instead of trying to save up a large amount all at once, break it down into smaller, more manageable chunks. Set up a sinking fund specifically for your savings goals and watch it grow. You’ll be making it rain (savings) in no time!

We bought both of our cars with sinking funds and I wouldn’t have it any other way. We have two very reliable cars and no car payment. That just means we can keep adding to our current sinking funds.

Sinking Funds Encourage Better Savings Habits

Setting up sinking funds can actually be enjoyable. Hear me out! 

It’s a chance to get creative with your savings goals and make a plan to achieve them. Plus, seeing your sinking funds grow over time can be a satisfying feeling. 

When you see your sinking funds grow, you’ll want to save even more money. And when you think about and focus on saving money, you’ll create better savings habits that will last.

Plus, you can add extra creativity with a sinking fund coloring sheet. That way you can color new sections of your picture every time you make your automatic transfer to savings.

So, there you have it – sinking funds are the bomb dot com. They can help you avoid credit card debt, reduce financial stress, reach your savings goals, and even be fun. What are you waiting for? Start setting up your sinking funds today!

Examples of Sinking Funds

sinking funds for beginners

So, what are some examples of sinking funds that you could set up for yourself? There are so many sinking fund categories and types of sinking funds to help you save money, but here are a few essential sinking funds examples to get you started. I recommend creating a separate sinking fund for each savings goal and tracking them in a simple sinking fund spreadsheet.

Home Repairs and Maintenance

Whether it’s a leaky roof or a broken appliance, home repairs can be costly. By setting up a sinking fund for home repairs and maintenance, you can be prepared for unexpected expenses that come up.

Medical Expenses

Even with health insurance, medical expenses can add up quickly. By setting up a sinking fund for medical expenses, you can be prepared for copays, deductibles, and other out-of-pocket costs.

It’s stressful enough to get injured or sick. Don’t add to the stress with panic trying to figure out how to pay for your medical needs and expenses.

Education Expenses

College is SO expensive and it doesn’t seem to be getting cheaper anytime soon.

If you have kids, you can set up a 529 account or use UNest to create a custodial account and start saving for their college right now. Neither of these is a traditional sinking fund, but you can treat it the same way in your monthly budget and set aside a little money each month for education.

An education sinking fund is also a great way for you to pay for tuition if you decide to enroll in college later in life. Start saving now to get a head start.

When you plan your budget with future education expenses in mind, it eases the burden and hopefully lowers your reliance on student loans.

Travel and vacations

This is one of my favorite sinking funds! By setting up a sinking fund for travel and vacations, you can save up for your next adventure without having to put it on a credit card. We use this for quick weekends away and big family vacations.

Holiday shopping

The holidays can be an expensive time of year, but by setting up a sinking fund for holiday shopping, you can avoid going into debt to buy gifts for your loved ones.

Our Christmas sinking fund gets $75 a month and makes holiday shopping so much less stressful to just buy what we need and splurge if we want.

Car repairs and maintenance

Ugh, car repairs suck, but are also inevitable. If you know you’re going to need to fix your car at some point, you might as well plan ahead.

Plus, yearly maintenance like oil changes go a long way toward increasing your vehicle’s life. Car repairs and maintenance can be a significant expense. By setting up a sinking fund for car repairs and maintenance, you can be prepared for unexpected expenses that come up.

Pet expenses

If you have a furry friend, you know that pet expenses can add up quickly. Nobody wants to pay for an emergency vet bill when their dog swallows a spool of thread, but when you’re sitting in the vet ER, they usually require a payment right then and there.

Plan ahead and avoid the stress. Also cross your fingers that your pets don’t eat anything they shouldn’t.

Home upgrades

If you’re planning to make upgrades to your home, such as a new roof or kitchen renovation, setting up a sinking fund for home upgrades can help you save up for those expenses.


Do you have a lot of birthdays or weddings to attend? Setting up a sinking fund for gifts can help you be prepared for those expenses without going over your budget.

Personal sinking fund

We started doing this a few years ago to create a way for my wife and me to surprise each other with random gifts. Her love language is gifting, so it’s a simple way for us to enjoy spending our money on each other without the expenses impacting the rest of our monthly budget. If you’re struggling with gift giving for your partner, I can’t recommend this enough.

These are just a few examples of sinking funds that you could set up for yourself. The key is to identify expenses that you know are coming up in the future and start saving for them in advance. 

By planning ahead and creating financial goals, you can avoid financial stress and be better prepared for whatever life throws your way.

How to Set Up a Sinking Fund

sinking funds for beginners

Setting up a sinking fund is a straightforward process that anyone can do. Here are the basic steps to get started.

Identify Your Savings Goals 

Determine what expense or goal you want to save for. This could be anything from a home repair to a vacation to a future car purchase. You can use some of the examples above to help you get started and create sinking funds to help you save for each financial goal.

Our first savings goals were to create an emergency fund, holiday shopping, vacation to save for an anniversary trip, and a sinking fund to eventually buy a house.

The sinking funds you create should reflect your goals, values, and priorities of your budget. Learn more here about creating a values based budget. You can use a 50/30/20 budget template to get started.

Calculate the Cost of Your Sinking Fund Goals

Once you know what you’re saving for, estimate how much money you need to reach your goal. This will give you a target amount to aim for with your sinking fund.

If you’re creating a general sinking fund for something like car repairs, you just need to determine how much you want to contribute and transfer to your sinking fund each month. There isn’t necessarily an end date you need the money by.

Other sinking funds like a wedding are different. You’ll want to plan how much you’ll need to spend, and then work backwards from there.

Use your budget to see how much you can afford to add for each sinking fund, and if you need to cut expenses to achieve your financial goals, your budget can help you do that too.

Determine Your Timeline to Reach Your Savings Goals

Sinking funds help you create small manageable steps for your big financial goals. 

If you’re saving for a home repair that you expect to need in a year, for example, your timeline will be different than if you’re saving for a vacation that’s several years away.

For example, if you’re getting married in a year you can work backwards to save enough each month instead of trying to do it all at once or load up your credit card balance.

If you decide you need $10,000 to pay for your wedding, divide that number by the number of months until your wedding to get your monthly sinking fund contribution. Then add that amount to your monthly budget so you remember to set that money aside.

In this case, you’ll need to add $833 a month to your wedding sinking fund. That might feel like a lot, which is a good reminder to start saving for big life events like weddings, college, and buying a house right now. 

And some sinking funds like car maintenance I mentioned above you don’t need to worry about creating a time table. Just set up an automatic transfer and let it grow, using it when you need it.

Set Up a Separate Savings Account for Your Sinking Funds

Sinking funds are meant to be spent for your specific savings goals. So if you’re in the habit of dipping into your savings for regular expenses, creating a separate savings account is a great idea. 

It’ll make it harder to access the money and transfer it to your checking account.

Plus, a separate savings account will make it easier to track your progress and avoid accidentally spending the money. 

I also highly recommend using a high interest savings account like Capital One or Ally to help you earn interest money while your sinking funds wait to be spent. 

I love using our sinking fund spreadsheet so I know exactly how much money I have for each savings goal. It helps us manage many sinking funds in one place and with one account. You also don’t need to create a new account for each sinking fund this way.

Set Up Automatic Transfers

Out of sight, out of mind is a great approach to saving money.

To make saving for your sinking fund easier, consider setting up automatic transfers from your checking account to your sinking fund savings account. This way, you can move money toward the fund with ease and gradually save money each month.

I’ve learned that if I have money in my checking account, I’m more likely to spend it. 

But if I take a few minutes to set up automatic monthly transfers for each sinking fund, I save money without much effort. An extra tip is to stagger your automatic transfers throughout the month so their easier to track and align with your paychecks.

I set up an automatic transfer for all of our savings goals including our sinking fund for Christmas and our vacation fund. 


If you’re new to sinking funds, take the time to identify your goals and expenses, calculate the costs, and set up a separate savings account for your sinking funds. With a little bit of planning and dedication, you can be on your way to a more secure financial future.

Remember, sinking funds are different from emergency funds, which are designed to cover unexpected expenses that could arise at any time. By having both types of funds in place, you can be well-equipped to handle whatever life throws your way.

You can read more about how to start an emergency fund to keep growing your savings.

Our budget and goals changed our lives and it can change yours too.

Sinking Funds for Beginners: How to Set Up Sinking FundsSinking Funds for Beginners: How to Set Up Sinking FundsSinking Funds for Beginners: How to Set Up Sinking FundsSinking Funds for Beginners: How to Set Up Sinking Funds

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