I'm Karen!

I am a blogger and finance coach. My specialty is helping couples get on the same financial page and win with money and marriage. 


Personal Finance


Financial Planning

What are sinking funds?

I love sinking funds and since we have introduce them in a strategic way to our budget, they have been a complete game changer for us.

Have you ever found yourself blindsided by unexpected expenses? Perhaps you’ve experienced the anxiety of trying to juggle holiday costs or looming bills without a clear plan. If so, you’re not alone.

Many people struggle with managing irregular expenses, but there’s a financial tool that can help: sinking funds. In this blog, I’ll explore the ins and outs of sinking funds, why they’re essential for financial stability, and how you can implement them effectively in your budget.

Understanding Sinking Funds

At its core, a sinking fund is a designated account where you regularly set aside money for specific purposes. These could be anticipated costs like car maintenance, annual insurance premiums, holiday expenses, or any other irregular financial obligations. Unlike emergency funds, which are reserved for unexpected crises like medical emergencies or job loss, sinking funds are specifically earmarked for planned expenses that occur periodically throughout the year.

Differentiating Sinking Funds from Emergency Funds

It’s crucial to distinguish sinking funds from emergency funds. While both serve as financial safety nets, they serve distinct purposes. Emergency funds are reserved for unforeseen crises that require immediate attention, such as medical emergencies or sudden job loss. In contrast, sinking funds are intended for anticipated expenses that occur periodically, allowing you to plan and save for them in advance.

For more information on emergency funds, read my blog What is an Emergency Fund?

Incorporate sinking funds into your budget.

How Sinking Funds Work

So, how exactly do they function in practice? Let’s break it down with an example. Suppose you allocate £350 per month to your sinking funds. You could divide this amount among various categories based on your anticipated expenses. For instance, you might allocate £100 for holidays, £50 for Christmas, £50 for back-to-school expenses, £50 for dental bills, £50 for car repairs, and £50 for home maintenance.

Over time, these regular contributions accumulate, building up a reserve of funds to cover each specific expense when it arises. By consistently setting aside small amounts throughout the year, you’re able to avoid the stress of having to come up with a large sum of money all at once. Instead, you’re prepared and in control when those expected expenses inevitably occur.


Here are some key advantages:

Financial Preparedness: Sinking funds enable you to plan and save for anticipated expenses, reducing the financial strain when those expenses arise.

Budgeting Ease: By breaking down larger expenses into manageable monthly contributions, sinking funds make budgeting more manageable and predictable.

Reduced Stress: Knowing that you have funds set aside for upcoming expenses provides peace of mind and reduces anxiety about financial uncertainties.

Improved Financial Discipline: Sinking funds encourage disciplined saving habits and discourage impulsive spending by allocating money for specific purposes.


Now that you understand the concept of sinking funds, how can you implement them effectively in your financial planning? Here are some practical steps to get started:

Identify Anticipated Expenses: Begin by identifying non-regular expenses that you anticipate throughout the year, such as holidays, insurance premiums, car maintenance, or home repairs.

Allocate Funds: Determine how much you need to set aside for each expense category and allocate funds accordingly. Divide your monthly budget into specific sinking fund categories based on your priorities and financial goals.

Set Up Dedicated Accounts: Consider setting up separate savings accounts or designated compartments within your existing accounts for each sinking fund category. This segregation helps ensure that the funds remain earmarked for their intended purposes and reduces the temptation to use them for other expenses.

Automate Contributions: Set up automatic transfers from your main account to your sinking fund accounts on a regular basis, such as payday. This ensures that you consistently contribute to your sinking funds without having to rely on manual transfers.

Monitor and Adjust: Regularly monitor your sinking fund balances and adjust your contributions as needed. Life circumstances and financial priorities may change, so it’s essential to reassess your sinking fund allocations periodically.

Maximising the Benefits

Consider the following tips:

Start Early: The earlier you start saving, the more time you’ll have to build up your reserves and achieve your financial goals.

Be Realistic: Set realistic savings targets for each sinking fund category based on your income, expenses, and financial priorities. Avoid overcommitting yourself and ensure that your contributions are sustainable in the long run.

Review Regularly: Schedule regular reviews of your sinking fund allocations to ensure they align with your changing financial needs and goals. Adjust your contributions as necessary to stay on track with your savings targets.

Stay Flexible: While sinking funds provide a structured approach to saving for anticipated expenses, it’s essential to remain flexible and adapt to unexpected changes in your financial situation. Be prepared to reallocate funds or adjust your savings goals as needed.


In conclusion, sinking funds are a valuable tool for managing non-regular expenses and achieving greater financial stability. By planning ahead and setting aside funds for anticipated expenses, you can alleviate financial stress, maintain better control over your finances, and work towards your long-term financial goals. Whether you’re saving for holidays, insurance premiums, or other expenses, sinking funds offer a practical and proactive approach to budgeting.

If you’re ready to take control of your finances and implement sinking funds in your budget, start by identifying your anticipated expenses, allocating funds accordingly, and setting up dedicated accounts for each sinking fund category. Automate your contributions and regularly monitor your progress to ensure you stay on track with your savings goals. With careful planning and discipline, sinking funds can help you achieve greater financial security and peace of mind.

Remember, financial planning is a journey, not a destination. Stay committed to your goals, adapt to changing circumstances, and celebrate your progress along the way. With patience, perseverance, and prudent financial management, you can build a more secure future for yourself and your loved ones.

If you’re looking for personalised guidance or assistance with implementing sinking funds in your budget, then contact me at hello@moneyandmarriage.net With my help, we can can create a budget that aligns with your goals and priorities, setting you on the path to financial success.

If you are looking to improve your finances, be sure to send me an email at hello@moneyandmarriage.net to book a 30 minute complimentary call and learn about the advantages of having a finance coach on your team.

  1. Mrs Wow says:

    Great article, Karen!

    A sinking fund is an excellent way to save for specific goals, especially large purchases.

    Couples just have to find the discipline to see it through. Setting up automatic transfer helps.

  2. This blog post is so insightful. I use the Monzo pots to separate my sinking fund. Plus, reserving dedicated spending money for holidays avoids any guilt of going overboard on souvenirs and fancy meals!

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