Key takeaways

• Sinking funds can be a good way to save gradually for expenses you expect but don’t pay every month.
• They can cover everything from annual bills and car maintenance to holidays, home repairs, and taxes.
• Establishing a target amount and timeline for each category can help you determine how much to set aside regularly.

You set up a budget and things are going along as expected, but then an irregular expense can come along and throw things off.

If expenses that don’t occur every month catch you off guard, sinking funds may help. They can allow you to prepare in advance for costs you know will come at some point, even when you don’t know exactly when you’ll need the money.

What is a sinking fund?

A sinking fund is designed to cover irregular costs you can anticipate, such as routine car maintenance, holiday gifts, a vacation, or an annual insurance premium. This differs from an emergency fund, which is intended as a safety net for unexpected financial setbacks.

For instance, drivers all know that we will eventually need some kind of car repair. Yet these expenses can sneak up on us because they don’t show up as a monthly expense in our budget.  When you set aside money regularly in a dedicated sinking fund, you can be prepared when that repair bill does show up.

Read more: What is a sinking fund? How to budget without touching emergency funds

How much should you put in a sinking fund?

The target goal for a sinking fund really depends on the specific expense you’re saving for and when you think you’ll need to access the money. Then divide your savings goal by the number of months you have to reach it.

For example, if you expect to have a $1,200 expense 12 months from now, setting aside $100 per month would put you on track to reach your goal.

You may want to keep sinking funds separate from your emergency savings. Emergency funds are intended to provide a financial safety net for unexpected events, such as job loss or a major unplanned expense, while sinking funds help you prepare for expenses you can reasonably anticipate.

Read more: How to build an emergency fund

20 sinking fund categories you might consider

The trick to making sinking funds work for you is to know the different types of expenses that might apply, depending on your lifestyle, family, financial priorities, and other factors.

If you’re just getting started — or want to make sure you haven’t overlooked an irregular expense — here are 20 sinking fund categories to consider.

1. Annual and quarterly bills

You may be caught off guard by expenses that only come around once or a few times a year — like insurance premiums, memberships, professional fees, and other periodic bills — but these can be easier to manage when you divide the expected total into monthly savings. One way to estimate how much you’ll need is to look through the previous year’s expenses to identify bills that don’t normally fit into your monthly budget.

2. Short-term savings

Maintaining a general short-term savings fund can give you flexibility for future wants and needs that you haven’t specifically identified. As your goals become clearer, you can create more specific sinking funds and assign your savings accordingly.

3. Car maintenance

While you may already budget for recurring transportation expenses like gas and parking, additional costs for periodic car maintenance, new tires, registration fees, and larger repairs may be easier to manage when you save for them gradually, setting aside a portion each month.

4. Medical care

Healthcare expenses can vary throughout the year. If you know you typically have copays, prescriptions, dental work, glasses, or other out-of-pocket healthcare costs, a sinking fund can help you prepare for them.

Major unplanned medical expenses, on the other hand, may be something you might try to save for in an emergency fund.

5. Giving

If charitable giving is important to you, setting money aside regularly can help you incorporate it into your budget without disrupting other financial priorities. This sinking fund might cover charitable donations, giving to a house of worship, helping a friend or family member, or other causes that matter to you.

6. Birthdays

A birthday sinking fund can cover everything from meals and cake to gifts and games. How much money you set aside is entirely up to you. Maybe you are saving for a surprise party for a milestone birthday for your spouse. Or maybe you have young children who seem to be attending a birthday party every weekend. No matter who you are celebrating, set something aside for it.

7. Holidays

Holiday spending can add up quickly, making it a natural fit for a sinking fund. Decide what you want to spend on gifts, food, travel, decorations, and other celebrations, then work backward to determine how much to save each month.

Read more: Americans prioritize meaningful purchases this holiday season

8. Other celebrations

Weddings, graduations, anniversaries, baby showers, and other milestones can bring plenty of reasons to celebrate — and spend.

Creating a general celebration sinking fund can help you prepare for gifts, travel, attire, and other expenses that may come with saying yes to an invitation.

9. Pets

If you have furry friends in your life, you know that the most unexpected things can and do happen. Creating a sinking funds category for your pets ensures that there’s room in your budget for everything from emergency vet visits to extra special pup-day treats.

Read more: Pet services costs climb 1.3x faster than child care

10. Entertainment

An entertainment sinking fund can help you save for concerts, sporting events, movies, festivals, and other forms of fun without dipping into money intended for emergencies or other financial goals.

11. Technology

Smartphones, computers, tablets, TVs, and other electronics eventually need to be repaired or replaced. Instead of waiting until a device stops working to figure out how you’ll pay for another one, consider estimating its replacement cost and gradually saving toward it.

12. Vacations

If you’re dreaming about your next trip, you may want to turn that dream into a savings target. Estimate the total cost of transportation, lodging, meals, activities, and other travel expenses. Then divide that amount by the number of months until your trip to determine how much you’ll need to save each month. Saving ahead can help you enjoy the trip without having to rely as heavily on credit cards or pull money away from other financial priorities.

13. Home decor

This category can cover everything from seasonal decorations to furniture and household updates. Whether you want to replace a worn-out sofa, furnish a new room, or simply refresh your space, saving ahead can help you make those purchases without squeezing your monthly budget.

14. Home repairs and maintenance

Homeownership comes with ongoing maintenance and repairs. A sinking fund can help you prepare for predictable costs such as appliance replacement, HVAC servicing, painting, landscaping, or routine maintenance. Keeping money available for these expected costs can also help preserve your emergency savings for expenses you truly didn’t anticipate.

15. Home renovations

Do you have plans to remodel a bathroom, add a back patio, or finish your basement? Consider creating a sinking fund specifically for home renovations down the road. As you estimate project costs and timelines, it can make sense to account for the possibility that actual costs may differ from your initial estimate, particularly for larger projects.

16. Clothing

If clothing isn’t a regular line item in your monthly budget, a sinking fund can help cover seasonal wardrobe costs and less frequent purchases. That might include winter coats, work clothes, shoes, formalwear, school clothes, or other purchases that tend to occur at certain points during the year.

17. Beauty & grooming

Haircuts and other routine personal-care expenses may already be part of your monthly budget. Less frequent services and purchases can be handled separately.

A sinking fund could help you plan for occasional expenses such as special-event hair and makeup, massages, spa visits, or other personal-care spending.

18. Subscriptions

Annual subscriptions and memberships can be easy to forget because they don’t appear in your budget every month. Review your subscriptions regularly, cancel the ones you no longer use, and consider setting aside money each month for annual renewals you want to keep.

19. Extracurriculars and hobbies

If you have kids, you may already factor regular childcare costs into your budget. But extracurricular activities can bring additional expenses, including registration fees, lessons, equipment, uniforms, competitions, and travel. And this category isn’t just for kids. Adults can use the same approach to save for hobbies, recreational sports, classes, equipment, or other interests.

20. Taxes

Depending on your situation, you may need to plan for tax bills that aren’t fully covered through paycheck withholding. For example, self-employed workers and others who make estimated tax payments may need to set aside money throughout the year.

If you expect to owe taxes, regularly setting aside a portion of your income can help you prepare for upcoming payments rather than having to cover a larger bill all at once.

Read more: Do you need to make estimated tax payments?

Final thoughts

Sinking funds can help make irregular expenses more predictable. Instead of waiting for a known expense to arrive and then figuring out how to pay for it, you can identify the cost ahead of time and save toward it gradually.

Remember that sinking funds and emergency savings serve different purposes. Using both can help make your budget more resilient while keeping other financial goals on track.