Quick answer
A sinking fund is money you set aside each month for a specific expense you know is coming, like car registration, insurance premiums, holiday gifts, school costs or tires. Divide the expected cost by the months until it is due and save that amount each month in a separate account or bucket. It differs from an emergency fund, which is for costs you cannot predict.
Common sinking funds
| Expense | How to figure it |
|---|---|
| Car maintenance and tires | Last year's total divided by 12 |
| Annual or semiannual insurance | Premium divided by months until due |
| Holidays and birthdays | Last year's spending divided by 12 |
| School costs | Supplies and fees divided by months until August |
| Medical deductible | Deductible divided by 12 |
Common questions
What is the difference between a sinking fund and an emergency fund?
A sinking fund is for planned costs; an emergency fund is for surprises like a job loss.
Where should I keep sinking funds?
A savings account, separate from checking, or labeled buckets if your bank offers them.
How many sinking funds should I have?
Start with the two or three largest irregular costs you pay each year.
Where these facts come from
Sources checked October 10, 2026. Programs and rules change; confirm details with the agency or company before you act.
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