Sinking Funds – Who, What, Why Etc.

Sinking Fund.


What it is, why you need it, how to do it.

What it is: A savings account for known non-monthly expenses. Any expense you can reasonable predict but that you don’t get billed for monthly. Car insurance for example. What it’s not for – emergencies, fun things etc. This is not the savings account you use when your car transmission dies or when you want a new dress.

Why you need it: So you aren’t late with bills. So you aren’t stressed when you realize that you have a car insurance bill due next week. To be prepared for the expected expenses.

How to do it: figure out all non-monthly expenses for the upcoming year and set aside money each payday into a dedicated savings account.

What to account for:

  • HOA fees
  • Car insurance
  • Car registration
  • Vacation
  • Christmas, birthday and other gifts
  • Medical deductible (use a H.S.A. to cover this if you can)
  • Property tax and homeowners insurance if mortgage is paid off
  • School tuition
  • Water and Sewer bill if not monthly

My Real Life Example

High School Homeschool Tutor Fees $5,000

Property Tax $5,000

Homeowners Insurance $1,300

Quarterly Water Bill ($350 every 3 months) $1,400

Car Insurance $1,200

Car Maintenance $500

Total $14,400

Divided by 24 paychecks = 600

Every payday I have $600 automatically transferred into my Sinking Fund Savings Account.

I have 3 different savings accounts at Capital One 360: Sinking Fund, Emergency Fund and regular savings account.

I use the sinking fund for the above expenses. The emergency fund is used for the unexpected…water heater dies, roof gets a hole, you forget your wife’s birthday and need to buy your way out of the doghouse. The regular savings account is used for whatever we want…night out, weekend away etc.

sinking fund