Sinking Funds: Save Your Budget and Save For Fun (Free Printable Tracker)


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Let’s talk about that time a sinking fund saved my life. 

Picture it: North Carolina. April 2016 A.D. 

I opened my bill for the 6-month car insurance premium and got hella sticker shock. ✉️😱

This is the testimony about sinking funds I shared in a Facebook group on April 30, 2016.

I thought, “Lawd, not another thing. I really don’t wanna touch my opportunity fund (read: emergency fund) for this. Guess I’ll do some more freelance writing gigs.”

Then it dawned on me that I had already saved this money. I smooth forgot that I started saving about $40 each payday in an online account (completely separate from my regular checking account) months ago. I went from PANIC to PEACE in about 5 minutes. 😩➡️😊

This was one of my very first sinking funds, but I didn’t even know what to call it then. 

I was living paycheck-to-paycheck. A large bill—unexpected or expected—would have caused a panic attack and definitely another dip in debt. I probably would’ve put that bill on a credit card had it not been for the sinking fund. Who knows how long it would’ve taken me to pay off. 

I want you to experience the same peace I did in April 2016. So let’s set up your sinking funds!

What is a sinking fund?

A sinking fund is a fund made for saving small amounts of money over time to cover an expense, often large and expected, in the future. A sinking fund allows you to save to spend. It’s what I created for my car insurance premium. I set up a Capital One 360 account and put about $40 in it each pay period until I had the full payment. 

Isn’t this the same as an emergency fund? Not really.

What’s the difference between sinking funds and emergency funds?

Sinking funds are usually for known expenses (Christmas shopping and travel, vacations, car repairs, annual memberships, homeowners association fees, prescriptions). Emergency funds are for huge, unknown expenses (job loss, unexpected medical procedures, etc.).

Words from the wise: Keep money for sinking funds separate from your emergency fund, bills money and everyday spending money. Also, try to build an emergency fund before setting up sinking funds for fun stuff, like vacations and new cars. First things first! 

differences between sinking funds and emergency funds

What is the purpose of a sinking fund?

Sinking funds help you prepare for the future in the present by saving a little bit at a time. Then, they give you peace of mind and a sense of security when that future event arrives and you’re able to drop cash to cover those expenses.  

If you’re on the debt-free journey, then it’s important to add sinking funds to your budget. You don’t want to get deeper in debt by charging your credit card for something you could have prepared for and paid cash for.

Don’t have debt? Sinking funds are great for keeping you out of debt, too, by thinking ahead.

In summary, sinking funds help you:

  • plan for fun stuff, like going on vacation
  • save a little bit every pay period so big purchases don’t catch you off guard or blow your budget
  • spend guilt-free on large purchases because you saved cash for it
  • reduce your chances of getting deeper into debt

When would you use a sinking fund?

You would use a sinking fund when you know you have something on the horizon and don’t want to pay a large sum of money at once for it. Who has $14,000 ready available when they want to buy a new car? Hardly anyone. Use a sinking fund to put a small amount of the total to the side, so it’ll be ready when you need it.

Here’s how sinking funds work. You budget $200 each month for sinking funds in 3 categories:

  • $100 for vacation
  • $60 for car repairs and insurance premium
  • $40 for pet care

At the end of the year, you saved $2,400:

  • $1,200 for vacation
  • $720 for car repairs and insurance premium
  • $480 for pet care

That total, $2,400, sounds like a huge number. But using sinking funds makes saving easy, much more manageable.

What sinking fund categories should I use in my budget?

Use the categories that are most relevant to your life. Some irregular, but known, expenses to put in your budget include:

  • Homeowner association (HOA) fees
  • Home maintenance or cosmetic upgrades
  • House down payment
  • Christmas and other holidays
  • Vacations
  • Auto repairs
  • New car
  • Car insurance premiums
  • Medical expenses
  • Education expenses 
  • Pet care 
  • Professional membership dues

How many sinking funds should I have?

However many you need. It depends on your needs and goals. I don’t have any major bills, so I’d only need a vacation sinking fund. But you might have a spouse, kids, pets or major bills to consider.

If savings totals are small enough, you could include some stuff in one month’s budget instead of spreading it out over the year. Use your discretion.

Where should I store the sinking fund?

Capital One allows you to have multiple sinking funds and nicknames, such as “Car Stuff” and “Gifts and BDays.” (Courtesy of @TheFigureMaker)

Saving money in a sinking fund could be as simple as reusing an envelope, scribbling “Christmas shopping” on it and inserting $20 in it every payday for 8 months.

However, online savings accounts can help your money grow while you wait to spend it. Savings accounts at brick-and-mortar banks down the street won’t give you 1% or 2% interest. My savings earn money in my Capital One 360 account, which has no monthly fees. Make money or don’t make money? It’s your choice.

You can also house multiple sinking funds with Capital One: Dream Fund, New Car Fund, Disney Vacay 2010, etc.

Plus, you can nickname each account to make the saving intention more concrete and easier to revisit. Which name is more meaningful: Account xxxx 8642 5467 or Dream Home? As concluded by a savings study, the act of writing down one’s intentions helps you to experience the meaningfulness of saving, “making the mental connection between the saving, and the meaningful activity which will be made possible with the saved money.”  

How Do I CREATE or Change the NickName OF My Capital One 360 Account?

To give your account a new nickname or modify an existing one, follow these steps:

  1. Sign in to
  2. Click on your name in the upper righthand corner.
  3. Click on Settings.
  4. Click on the pencil icon for the account you want to give the nickname to.
  5. Enter a nickname for your account in the Nickname field.
  6. Click on Save to save your nickname.

1. After you sign in to your Capital One account, click on your name in the upper righthand corner.

2. Click on Settings.

3. Click on the pencil icon for the account you want to give the nickname to.

4. Enter a nickname for your account in the Nickname field. Click on Save to save your nickname.

5. Your new nickname should automatically appear after you hit Save.

How much should be in a sinking fund?

The total amount of that bill or savings goal—that’s how much should be in a sinking fund. It all depends on your bills and goals. That’s why it’s important to get very clear about those first. 

You may not be able to estimate the costs for everything. For example, you can budget ahead of time for oil changes every few months, new tires at the end of the year and your annual AAA membership dues in the “Car Stuff” sinking fund. But you don’t know if the mechanic will find something else during visits or if you’ll break down on your way to work.

Here’s a solution: Pad your savings for unknown car repairs. Even better—review your car expenses from last year and include in your sinking fund goal.

How does a sinking fund work?

Here’s how to make a sinking fund in 7 easy steps:

  • Step 1: Decide on the total amount of money needed to reach your savings goal. If you’re making a sinking fund for Christmas, list the people you want to buy gifts for, how much each gift would cost and travel expenses.
  • Step 2: Set a deadline for the goal.
  • Step 3: Count the number of pay periods before the deadline. 
  • Step 4: Divide the total amount by the number of pay periods.
  • Step 5: Open a high-yield, online savings account or get a cash envelope. Keep this money separate from your everyday spending money, bills money and emergency fund. 
  • Step 6: Automatically or manually save that small amount from Step 4 in each account or envelope. 
  • Step 7: DON’T TOUCH THE SINKING FUND FOR ANYTHING ELSE THAN THE INTENDED GOAL. Let the money accumulate all the way to the deadline, if possible. 

Sinking Fund Formula

Sinking Fund Ingredients

  • Savings goal
  • Deadline
  • High-yield savings account or cash envelope 

Sinking Fund Formula 

Total Amount of Money/No. Of Pay Periods Before Deadline=Sinking Fund Savings Each Pay Period 

For example, you want to save $210 for Christmas presents over 5 months and you get paid the first of each month. Apply the sinking fund formula like this: $210/5 pay periods=$42 in savings per pay period. Put that $42 in a high-yield savings account or a cash envelope. Let it earn interest until you’re ready to spend it. Easy enough, right?

Key takeaways

Sinking funds can be a great way to plan ahead and feel less stress about your money. Simply pick a savings goal, set a deadline and save money every pay period or every time you get a windfall. Your future self with thank you.

Sinking Funds for Saving Money Consistentl



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