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?

Have you heard of sinking funds? Do you know what they are? Do you have them? Carry on reading to find out what sinking funds are and why I can’t live without them!

Have you ever been caught off guard by non-regular expenses? Does the thought of managing holiday expenses or upcoming bills cause undue stress? If you you answered, “Yes!” to any of these questions, then introducing the concept of sinking funds might just be the solution. 

Personally, I can’t imagine how we managed before incorporating sinking funds into our budget. Now, when the car service or the annual house insurance is due, we have dedicated funds ready and waiting. This is the result of consistently setting aside small amounts throughout the year for these anticipated expenses.

A sinking fund is an account that you add to every payday to cover non-regular expenses.

What’s the difference between a sinking fund and an emergency fund?

A sinking fund is NOT your emergency fund. Your sinking funds are for non-regular expenses, like car insurance, holidays, Christmas and so forth. Things that you know are coming. 

For more information on emergency funds, click HERE.

How do sinking funds work?

Let me give you an example.

Here’s what it would look like to split £350 per month among six different sinking funds:

£100 for holiday

£50 for Christmas

£50 for back to school

£50 for dental bills

£50 for car repairs

£50 for home repairs

At the end of one year, your sinking fund totals would be:

£1,200 for holiday

£600 for Christmas

£600 for back to school 

£600 for dental expenses

£600 for car repairs

£600 for home repairs

If there’s something you know you need to pay for soon or something you really want, do the maths and decide how much you need to save over the year. Just be sure to leave yourself some breathing room in your monthly budget: “Don’t leave yourself short” as my Dad would say! 

What can I use sinking funds for?

You can set up sinking funds for everything and anything!

As an illustration, we use sinking funds for:






Car service / MOT

Back to School

Whilst spending £600 at Christmas seems a huge spend, if you save the money over 12 months, then it makes it less painful.

Where do you keep your sinking fund?

We have several savings accounts attached to our main current account. Through internet banking, I can easily transfer money to each sinking fund every pay day. Another alternative is to set up standing orders to transfer the money for you. 

I have found that keeping sinking funds in your main current account will carry a risk of spending it early.

Equally important, if the money is in a savings account as you may earn a little interest! 

Money Apps

With this in mind, if you like the idea of money ‘pots’, then the newer banking apps may be a good choice for you. 

Monzo, Starling and TSB, to name just a few, all have ‘pots’. These ‘pots’ are ideal for your sinking funds! 


To conclude, saving all the year round will take off so much financial pressure when these non-regular expenses come around.

It’s all about being intentional with your hard earned cash! 

A sinking fund working together with an emergency fund and a good budget is the way to financial freedom!

If you’d like help with your budget, please check out my super, simple Excel Budget Spreadsheet, available at the Money and Marriage Shop! Check it out HERE!

In the meantime, do reach out to me on Twitter or Instragam and let me know how your journey with sinking funds are getting on!

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