Sinking funds: how to plan for known expenses

How it works

Monthly amount = cost ÷ months until the due month. Months are whole calendar months from the current month to the due month, with a minimum of one. You set aside at the start of each month, beginning this month. Interest, inflation and price changes are not modelled.

Worked example (made-up numbers)

These are examples only, not typical costs. Today is October 16. A $600 item due December 15 has two deposits (October, November), so it needs $300 a month. A $1,200 item due October 1 next year has twelve, so $100 a month. A $100 item due January 31 has three, so $33.33 a month. The three together need $433.33 a month.

Sinking funds categories list

Ideas for what to put in a sinking fund. This is a prompt list, not a recommendation: we claim no typical amounts, because costs depend on where you live and how you live. Use your own statements and bills to set the cost.

• Home and car: Car registration or tags, car repairs and maintenance, tires, home repairs, appliance replacement, renters or homeowners insurance paid once or twice a year.
• Health: Dental and vision, prescriptions, deductibles and copays, glasses or contacts.
• Annual and irregular bills: Annual subscriptions, memberships, property tax, professional fees, tax preparation or any tax bill you expect.
• People and occasions: Birthdays, holidays and gifts, weddings, travel for family events, school costs and supplies.
• Planned purchases: A phone or laptop replacement, furniture, a vacation, moving costs.
• Pets and fun: Vet visits, pet insurance, hobbies, a yearly trip.

A good way to find items is to scan the last twelve months of bank and card statements for charges that came once or twice a year. Those are the ones that feel like surprises.

Where to keep the money

Some people use a separate savings account, others one account with a note of what each part is for. Either works if you can see how much is set aside for each item. If the account pays interest, the savings calculator shows how a balance grows. Check that any account you use is insured; see the FDIC’s deposit insurance page .

Fit it into your plan

Take the total monthly figure and add it as an expense line in the dated savings plan or the budget planner so it is counted before anything else. If it does not fit, the expense cutting guide is the next step. For a simple savings habit, try the 52-week challenge.