Sinking funds: how to save for expenses you know are coming

Where the term comes from

“Sinking fund” is an old public-finance term. In 1717, Britain set up a sinking fund based on a plan drawn up by Robert Walpole, often described as the country’s first prime minister. Surpluses from certain tax revenues were set aside to pay down, bit by bit, the national debt issued before 1716. François Velde, an economist at the Federal Reserve Bank of Chicago, describes it as a fund to which resources are appropriated and used to “sink”, or repay, a capital sum. Walpole’s plan projected that the debt could be extinguished within 32 years at 5% interest.

What happened next is a useful warning. Later Parliaments, including under Walpole’s own ministry in the 1720s and 1730s, diverted those surpluses to other uses. A sinking fund only works if you don’t raid it.

The idea is still everywhere in finance. Many corporate and municipal bonds include a sinking fund: the issuer pays money into it on a schedule, and it is used to redeem the bonds as set out in the bond contract.

For a household the logic is the same: turn one large annual bill into small monthly amounts.

Sinking fund vs emergency fund

Both are money set aside in a savings account, but they do different jobs.

The classic mistake is paying property tax or holiday gifts out of the emergency fund. It drains without any emergency happening, and when the boiler dies there’s nothing left. For how to size and where to keep that safety net, see our guide to building an emergency fund.

The costs worth planning for

Go through the last 12 months of statements and note every cost that doesn’t hit monthly. The usual suspects:

• Insurance paid annually or twice a year: car, home or renters, sometimes life insurance.
• Property tax, if it isn’t already included in your mortgage payment.
• Back to school: clothes, supplies, electronics, fees.
• Holidays and gifts: Christmas, Diwali, Eid, birthdays, weddings.
• Car: servicing, tyres, registration, wear-and-tear repairs.
• Pets: vaccinations, vet visits, boarding.
• Trips, including visits to family abroad.
• Annual subscriptions and memberships: software, warehouse clubs, gym, professional dues.
• Replacements: phone, laptop, appliances.
• Taxes for the self-employed. In the US, estimated tax payments are due on April 15, June 15, September 15 and January 15. Expecting $1,500 a quarter means setting aside $500 a month.

These costs are not small. Families with children in elementary through high school planned to spend $863.86 on average on back-to-school items in 2026, according to the National Retail Federation’s survey of 7,677 consumers. For the 2025 winter holidays, the NRF’s survey found people planned to spend $890.49 each on gifts, food, decorations and cards.

Working out the monthly amount: three cases

Case 1: the bill is 12 months away. Divide by 12. A $1,440 car insurance renewal needs $120 a month.

Case 2: the bill is closer. Divide by the months left. The renewal is due in four months and you have nothing saved: $1,440 ÷ 4 = $360 a month. After it’s paid, drop back to $120 a month for next year. If $360 is too much this time, cover the gap from that month’s budget, not from the emergency fund.

Case 3: a replacement. Divide the price by its lifespan. A $1,200 laptop kept for four years: $1,200 ÷ 48 = $25 a month. A $960 fridge that lasts eight years: $10 a month.

Here is Keisha, in Atlanta, with one child in school, a car and a dog:

$587 a month can look like a lot. But that $7,044 will be spent anyway. The only question is whether it comes out of a prepared pot or goes on a credit card.

The amounts change from country to country; the method doesn’t. In Bristol, Tom’s £600 car insurance renewal becomes £50 a month. In Lagos, Chiamaka’s ₦240,000 school fees for the September term become ₦20,000 a month over 12 months.

Your monthly sinking fund statement

Once a month, on payday, write yourself a short statement, like an invoice: what goes in and where each fund stands.

SINKING FUNDS · November statement
Fund                  Due         Target    This month   Balance
Summer trip           July        $2,400    $200         $800
Car insurance         March       $1,440    $120         $1,080
Holiday gifts & food  December    $900      $75          $825
Back to school        August      $864      $72          $216
Car maintenance       as needed   $720      $60          $300
Vet and pet           as needed   $480      $40          $160
Subscriptions         various     $240      $20          $100
------------------------------------------------------------------
TOTAL PAID IN THIS MONTH                    $587
TOTAL IN THE ACCOUNT                                     $3,481

The account balance should always equal the sum of the fund balances. If it’s lower, one of the funds has been spent on something else.

How many sinking funds?

Too many and you give up: twenty lines at $4 each means twenty calculations a month. Too few and a big bill still catches you out.

• Start with three to five, the largest costs. Those are the ones that push you into debt.
• Group the small ones into a single “annual extras” line: subscriptions, club fees, small gifts.
• Add a fund when a cost has surprised you twice.
• Close a fund when the cost goes away: the car is sold, the kids have left school.

One account or several?

Some banks let you split one savings account into named “pots” or “buckets”, which gives you both. Otherwise, the simplest set-up is often one savings account just for sinking funds, separate from the emergency fund, with each fund tracked line by line.

In Binome360, each sinking fund can be a savings goal with its own amount, date and progress bar. You log each deposit in one sentence and set a monthly reminder for payday. The app doesn’t connect to your bank and never moves money: it keeps the tally, you stay in charge.

Frequently asked questions

What if a sinking fund falls short?

Top it up from that month’s budget, or borrow from a less urgent fund, then raise the monthly amount for next year. Try not to use the emergency fund for a planned cost.

What if there’s money left over?

Leave it in the fund: it lowers what you need to save next year. Or move it to another goal.

Should I use a sinking fund if my insurer offers monthly payments?

Paying monthly solves the problem for that bill, sometimes at an extra cost. Compare the total yearly price of both options before choosing.

Are sinking funds part of my budget?

Yes. They sit with your fixed monthly costs, like rent. Our method to make a monthly budget gives them their own line.

Is a sinking fund the same as a savings goal?

Close, but not quite. A savings goal is usually a one-off (a wedding, a deposit on a flat). A sinking fund repeats: it empties when the bill is paid and starts filling again for next year.

In short

A sinking fund turns a known annual cost into small monthly deposits, kept apart from your emergency fund. The math is one division: amount ÷ months left. First action: open your statements, find the three largest non-monthly costs from last year, and set up the transfer that covers them.

Sources

• François R. Velde, “Britain’s Debt Restructuring, 1717–22”, Federal Reserve Bank of Chicago Working Paper 2025-21, October 2025: doi.org/10.21033/wp-2025-21.
• Municipal Securities Rulemaking Board, Glossary of Municipal Securities Terms, 3rd ed., 2013, entry “Sinking Fund”: msrb.org.
• National Retail Federation, “Majority of Back-to-School Shoppers Get a Head Start on the Season”, 2026 (survey of 7,677 consumers, July 1–8, 2026): nrf.com.
• National Retail Federation, “Consumers to Spend Second-Highest Amount on Record, According to NRF Holiday Survey”, October 2025 (survey of 8,247 adults, October 1–7, 2025): nrf.com.
• Internal Revenue Service, “Estimated tax” FAQs (payment due dates): irs.gov.

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