What Are Sinking Funds? How to Save for Irregular Expenses Without Going Into Debt
Sinking funds let you plan for irregular but predictable expenses by saving a little each month. Learn how to set them up and stop letting surprise bills derail your budget.
Your car insurance renewal arrives in October. Every year. You've known it was coming since last October. And yet, when the €480 bill lands in your inbox, it feels like an emergency.
This is what sinking funds solve. They turn every "surprise" expense into a planned, funded, stress-free transaction.
What Is a Sinking Fund?
A sinking fund is a dedicated savings bucket where you set aside a fixed amount each month to cover a specific future expense. The name comes from finance, where companies set aside money over time to repay debt or replace equipment — "sinking" the obligation gradually rather than facing it all at once.
For personal finance, a sinking fund works the same way: instead of paying €480 in October, you pay €40 in January, €40 in February, and €40 every month until October. When the bill arrives, the money is already there.
Sinking funds are not for emergencies — that's what your emergency fund is for. They are for known, irregular, predictable expenses that don't fit neatly into a monthly budget.
The Difference Between a Sinking Fund and an Emergency Fund
| Emergency Fund | Sinking Fund | |
|---|---|---|
| Purpose | True emergencies (job loss, medical crisis) | Planned irregular expenses |
| Amount | 3–6 months of living expenses | Specific to each target |
| Predictability | Unknown when you'll need it | Known in advance |
| Number | One | One per goal (or tracked category) |
| Replenishment | After use | Monthly contributions |
Both are essential. The emergency fund is your safety net. Sinking funds are your planning system.
Common Sinking Fund Categories
Almost any irregular expense can become a sinking fund. Here are the most common ones:
Vehicle expenses
- Annual insurance renewal
- Technical inspection
- Tires and maintenance
- Registration fees
Home expenses
- Annual property tax
- Home insurance renewal
- Maintenance and repairs (a common rule of thumb: budget 1% of your home's value per year)
- Appliance replacement fund
Annual subscriptions
- Software licenses
- Professional memberships
- Streaming services paid annually
Seasonal expenses
- Back-to-school supplies
- Holiday gifts and celebrations
- Summer holiday / vacation fund
- Winter heating bills
Personal milestones
- Weddings and events
- New laptop or phone
- Major clothing purchases
- Moving costs
How to Calculate Your Sinking Fund Contributions
The math is simple:
Monthly contribution = Total expected cost ÷ Months until you need it
A few examples:
- Car insurance (€480, annual): €480 ÷ 12 = €40/month
- Holiday fund (€1,200, in 8 months): €1,200 ÷ 8 = €150/month
- New laptop (€900, in 18 months): €900 ÷ 18 = €50/month
- Home repairs (€600, within the year): €600 ÷ 12 = €50/month
Add up all your sinking fund contributions and include the total as a single budget line item in your monthly plan. If sinking funds aren't in your budget, you'll spend the money on something else.
Where to Keep Sinking Funds
Option 1: Separate bank accounts The cleanest approach. One account per fund (or one account with sub-accounts if your bank offers them). The money is physically separate, so you can't accidentally spend it.
Option 2: A single sinking funds account Keep all your sinking fund money in one savings account, but track running totals in a spreadsheet or app. Less friction to set up, but requires discipline not to dip into one fund for another.
Option 3: Track in your budget app PatrimoinePlus lets you create savings goals and track your progress each month. The money stays in your savings account; the app tells you exactly where each saved euro is allocated.
Sinking Funds and Your Budgeting System
Sinking funds integrate seamlessly with most budgeting approaches.
In zero-based budgeting, sinking fund contributions are explicit line items in your monthly budget — each one allocated before the month begins.
In the 50/30/20 method, sinking fund contributions typically fall under the 20% savings and debt repayment bucket, alongside your emergency fund and long-term savings.
With pay yourself first, you automate your sinking fund contributions alongside your main savings transfer — the moment your paycheck arrives, specific amounts flow to specific destinations.
The Snowball Effect of Having Sinking Funds
The first year of sinking funds feels tight because you're building multiple funds from scratch. But by year two, your financial life changes dramatically:
- Car insurance arrives: the money is there
- Back-to-school season: funded
- Holiday gifts in December: covered
- Boiler service in spring: already saved for
What used to feel like a series of financial emergencies becomes a sequence of planned, funded expenses. The psychological shift — from reactive to proactive — is significant. You stop dreading the calendar and start anticipating it.
Combined with a solid emergency fund, sinking funds mean you almost never need to go into debt for anything except a deliberate, large purchase.
A Practical Example: Starting Three Sinking Funds This Month
Say your income is €2,600/month. You've identified three sinking fund needs:
- Car insurance (€600 due in 9 months): €67/month
- Holiday fund (€1,000 needed in 7 months): €143/month
- Home repairs (€400 buffer per year): €33/month
Total sinking fund contribution: €243/month
That's €243 that disappears from your spending budget every month. But when October comes, when summer arrives, when the radiator needs work — there's no crisis. Just a transfer from the fund to the payee.
Getting Started
Start with your single most impactful sinking fund — the one expense that has blindsided you most recently. Calculate the monthly contribution. Set up an automatic transfer. Add it to your budget as a fixed line.
Then add one fund every month or two until your major irregular expenses are covered. PatrimoinePlus makes it easy to create savings goals and track your progress toward each fund.
The goal is a budget that has no surprises — only plans.