21 Sinking Fund Categories to Consider In Your Budget

Budgeting isn’t just about making sure you have enough to pay the bills each month. It’s also about planning ahead for future expenses. While you should have an emergency fund, a smart way to save money each month is to set up different sinking funds categories.

Sinking fund categories

Sinking funds allow you to put money aside each month for specific things.

In this article, you’ll learn about the different types of sinking fund categories. These can help you build out your budget and live debt-free.

Why do sinking funds categories matter?

According to PR Newswire, 80% of Americans have a budget.

But many don’t have enough money saved. In fact, YouGov claims that 12% of surveyed Americans said they have no savings, and 27% had less than $1,000 in savings. 

The purpose of a sinking fund is to save cash for specific expenses. That can include one-time or irregular expenses. The cash ideally should be broken up into categories.

For example, if you have a wedding coming up, instead of using your credit card, you can figure out how much you’ll need for related expenses. Divide that amount by the number of months until the event. Then aim to save that sum every month in your “wedding budget breakdown” fund

Setting up a few options from our sinking funds list may help you avoid spending money on the wrong priorities. You can focus on saving a specific amount for a specific purpose every month. 

One benefit of sinking funds is that you don’t have to pay for things all at once. Spreading out the cost can reduce the pain of major expenses and stop you from going into different types of debt

You set aside money from your paycheck each month (or whatever frequency you decide) toward a specific financial expense. That’s to ensure you don’t go over your budget when a big event, repair, or other expensive item comes up.

Rather, you’ll save the money slowly for upcoming expenses and save yourself from taking on long-term debt. The alternative for many people is paying by credit card, and high-interest rates then compound the amount you owe. 

Setting up a sinking fund with specific categories can help you take your budgeting skills to the next level. It forces you to itemize your monthly budget even further, rather than just dumping leftover cash into a savings account. Every saving goal can have its own sinking fund. 

You know you need to create sinking funds but are you clear on the sinking fund categories you need? Here’s a list to help you plan!

18 Sinking fund categories to review

There are many sinking funds categories to choose from. And you’ll probably think of a few more besides what we’re including here. 

They aren’t just for parties and can include recurring yearly expenses, emergency bills, car expenses, appliance updates, wedding expenses (which can be costly), and more.

Keep in mind that sinking funds are just one part of your overall budget. Your budget will likely have several different budget categories to help you plan your finances overall.

That said, here are some of the more common sinking funds categories that you could incorporate into your budget:

1. Transportation

One of the biggest expenses besides housing is transportation. Whether you own a car, take public transport, or use Uber on the weekends, it’s important to budget for your transport costs.

If you own a car, you can set up a sinking fund to pay for car expenses, maintenance, and unexpected car repairs. New tires or other replacements for your vehicle can set you back hundreds of dollars (at least). 

Your car sinking fund could include money intended for vehicle registration fees, parking permits, and car insurance. You might even set aside money to purchase a new-to-you car eventually (find out: what car should I buy?).

And for those who use public transport, you can set aside money for train or bus passes or ride-sharing apps.

2. Medical expenses

Another of the sinking funds categories to establish is medical expenses. Going to the doctor is expensive, especially during an emergency.

In fact, according to Affordable Health Insurance, over half of Americans surveyed have medical debt.

Even with good health care insurance, it’s important to set up either a medical Flexible Spending Account (see “What is a flexible spending account?) or a Health Savings Account (HSA). You can use it as a medical sinking fund so you don’t end up in debt due to medical expenses.

3. Christmas and the winter holidays

Christmas is a good example of sinking funds categories that come every year. Unfortunately, many people don’t prepare ahead of time, eating into their budget or savings to pay for the holidays.

No matter how much money you spend for Christmas, Hanukkah, or other major holidays, a sinking fund category for them can ease the pressure of that time of year. It’s a saving goal with a specific deadline each year. So you can follow a sinking fund savings plan all year long or use Christmas clubs

Determine how much you plan (or will be able) to spend for the holidays. Then divide that amount by 12 if you plan to save money every month. (If you start later than January, simply divide the amount of money by the number of months remaining.) 

Don’t forget about things like decorations, office gifts, Christmas dinners out, and travel expenses if you go to see family. Those can go above and beyond your general holiday gift budget. 

You may still encounter unexpected costs. But by setting up a sinking fund specifically for Christmas, you can incorporate Christmas on a budget into your monthly budget all year long.

4. Vacation

Another good example of sinking funds categories is vacations. Whether you hit the road every few months, plan a big annual trip or some other vacation pattern, planning is key. By budgeting for your time off months ahead of time, you can be even more prepared and avoid taking on debt. 

If you are planning a trip to Disney World on a budget or even Europe, it can be a big life event. And you probably don’t want to put it all on a credit card. 

Create a vacation budget and, as with many items for sinking fund ideas, divide the amount by the number of months until the trip. That will allow you to take your family vacation or girls’ trip without worrying about money, so you can truly disconnect and relax.

5. Childcare

Unfortunately, the average family spends about 27% of their household income on childcare, according to Care.com. (And 59% of parents said they expected to pay more than $18,000 per child in 2023!) 

The cost of childcare will be a factor if you’re a parent. So that’s another one of the categories you might consider. You can also include other costs of raising a child, like preschool fees (find out “how much does preschool cost?”), sports and activity registration, clothes, dental and eye care, summer camps, and more. 

While some childcare-related expenses are unexpected, like when your child has a sudden growth spurt, you can prepare ahead of time for many by setting up a sinking fund.

6. Braces

Not every child needs braces, but many do. Braces are very expensive, costing thousands of dollars.

You may spend even more if you have more than one child. So it’s worth it to add this expense as a financial goal.

If you have any children or are planning on starting a family, start saving early.

7. Utilities

It might not be the most exciting item of sinking funds categories, but utilities are a necessary expense that usually fluctuates throughout the year.

For example, if you live in an area with harsh winters, your electricity bill will likely be more expensive in the winter than in the summer. However, you can consider how to lower electric bill payments.

You can plan ahead for these moments by setting up a sinking fund in your budget. Figure out the average you paid last year and split it between 12 months. That way, you’ll already have the money in your account when your bills are more expensive.

(Some utility companies arrange this for you. They’ll estimate your total bills and divide up the estimated total equally among your monthly bills for the year. You can do this yourself within a sinking fund, though, if it’s not offered by your utility provider.)

8. Self-care

While a self care Sunday here and there doesn’t have to be expensive, if you like to get specific hair or spa treatments, then it might make sense to set up a self-care sinking fund. 

Massages, nail care, laser hair removal, and more are all expenses that can add up. So, incorporate your favorite ways of treating yourself into your budget by setting up a sinking fund.

When it’s not a necessary expense, it can make you feel better to save a little bit each week or month for that specific purpose. Then, you’re less likely to neglect those special treatments or activities due to money. 

9. Special occasions

Special occasions like a major anniversary or wedding might not happen every year, but when they do, they’re often expensive.

For example, retirement parties, bar mitzvahs, quinceaneras, or the average wedding cost might be tens of thousands of dollars. Depending on your family and societal expectations. Don’t feel that you have to blow your monthly budget to impress anyone, but do consider how you want to contribute to those big moments. 

You can start saving for these events several years in advance to help spread out the cost of these one-time expenses. (If you’re like me and have a lot of college-aged nieces and nephews, those graduations and potential weddings are future expenses to consider!)

10. Annual renewal expenses

Some bills are recurring expenses that happen every year, such as annual renewals.

For example, perhaps you have subscriptions to software or other memberships. Even if you pay them in a lump sum each year, you can make sure to have the money set aside each month to spread out the budget burden. 

Write in your calendar when the payments are made. Then, you can prepare well ahead of time for anything that is a recurring expense.

11. Clothing

Unless you’re doing a no new clothes challenge, you might want to make a sinking funds category for clothing. That can include general clothing, seasonal clothing like coats or shoes, or clothing for special occasions like weddings or work events.

While you likely won’t need to buy new clothes every month, setting money aside every month can help you be prepared whenever it’s time to replace worn-out clothing. That also goes for kids’ clothing. Since they outgrow items quickly, a sinking fund for their clothes is a good idea as well. 

12. Gifts

A birthday party or anniversary presents can show your loved ones you care. But they also can rack up bills and debt if you’re not careful. Plus, you may like to give gifts for other occasions like Valentine’s Day, Mother’s Day, Father’s Day, and other special occasions.  

Thankfully, this category is usually easy to save for. The amount of money you’ll need for gifts may be lower than for other sinking funds categories. 

However, this depends on the number of people in your life, so no matter what, a budget item for gifts can help. Sustainable Christmas gifts and experience gifts for kids are great options, but that doesn’t always mean they’re free!

13. Home maintenance

If you’re a homeowner, you will definitely need to do some maintenance eventually. Home maintenance is one of the best categories because it works like an emergency fund but for the specific purpose of your home. 

A sinking fund lets you plan ahead for inevitable home maintenance bills. Unexpected bills for plumbing, windows, garage doors, or even a sinking foundation (ask me about that one!) can put a dent in your finances. 

It’s typically suggested to save between 1- 4% of the value of your home each year for maintenance. With any luck, you won’t need to spend it every year. But the flip side is that some years, you might face multiple big home expenses at once. 

Making a sinking fund for specific home repairs you know you’ll need is smart planning. It’s also something to factor in when deciding, “Should I buy a house now?” as it’s another ongoing expense.

14. Home furnishings

Sinking funds categories may also include home decor like furniture or new appliances. A new couch or bed can be very expensive. Instead of wondering where the money will come from, plan ahead.

Setting aside a bit each month in advance is much less stressful and better for your credit score. This type of sinking fund is fantastic for homeowners to have because retailers put appliances and furnishings on sale at certain times of the year. 

By planning ahead as a homeowner, you can take advantage of sales and offers while respecting your budget. 

15. Charity

One of the sinking fund ideas you might not have considered is one for giving to others. Whether you give to a church, another charity, or both, you might want to have some cash saved for a good cause in a sinking fund account.

Even if you’re not currently giving to a charitable organization, a charity sinking fund can ensure that you have the funds if you come across an organization or cause you’d like to help out with. 

Some people save a certain amount of money each month in their “giving” or “charity” sinking fund. Then, any time during the year when a GoFundMe or other giving campaign occurs, you’ll have an account to draw from when sharing your generosity. 

16. Tuition

Some sinking fund categories can include education expenses like tuition. Education is expensive, especially for private schools. Once the person reaches college, the annual cost of attendance at a four-year school is over $26,000 for in-state colleges

Obviously, this is a massive expense to try to plan for. While student loans may be an option, and scholarships and part-time work can help, a sinking fund started years in advance will ease a lot of headaches. 

If you send your kids to private school or are saving for their college, then a sinking fund like a 529 college savings plan might make sense, rather than a traditional savings account. (Find out, “Is a 529 plan worth it?”)

17. Pet care

Your sinking funds list might include caring for your beloved pets. Our canine and feline companions may also need some care at some point in their lives, so this is another sinking fund example. 

Besides the obvious monthly food costs, you should also plan for yearly vet visits, vaccinations, and emergency veterinary care. While some people take out pet insurance, many prefer to incorporate the cost into their monthly budget by saving it instead. 

Having a sinking fund set up for your cat, dog, or other animal can help you care for them without added financial stress. Then, if your pet becomes sick or injured, it can be much easier to manage the added expense. 

18. Emergency fund

If you do not already have an emergency fund, you should definitely set one up.

In fact, you should start to fund this category before any of the others.

Emergency funds are types of sinking funds categories that can help you pay for any unexpected expense that you weren’t planning for.

In general, it’s recommended to have about three to six months of living expenses saved up. But you can save more or less depending on your personal circumstances. Some people, like freelancers, may prefer having a 12-month emergency fund in case of volatility in their field of work. 

You should only draw from your emergency fund when financial emergencies and costs come up that you didn’t know were coming. If you need new tires or brakes on your car, that’s an emergency. If you find out you are losing your job, use your emergency fund to pay essential bills while you look for a new one. 

19. Pregnancy or adoption

Growing your family can be super expensive, whether by pregnancy, fostering, or adoption. Even in the “ideal” circumstances, pregnancy comes with a lot of additional costs. 

If you’re at the stage of your life where you’re thinking of becoming a parent, it’s not a bad idea to begin saving for that specific purpose. A sinking fund for having a child can ease a big financial burden. 

Consider not only the medical costs that you’ll incur through pregnancy but also the cost of missing work for childbirth, even if you’re considering how to make money on maternity leave. Since U.S. employers aren’t required to pay you for family and medical leave, missing several months of work can be a hardship. 

There could also be complications with fertility, which aren’t always covered by health insurance. If you decide to pursue adoption, that also can be quite costly: private adoptions range from $30,000 to $60,000

20. Technology upgrades

You could include this in a more general sinking funds list as “life upgrades.” Still, since technology and electronics are so integral to modern life, you can make it a separate savings category. Whenever you need to replace a smartphone, laptop, e-reader, or other tech device, you might use a sinking fund to do so. 

In particular, remember this if you rely on certain electronic devices for your job. If you are working from home or work remotely, your job almost certainly requires a reliable computer and related devices, so be ready to replace those things regularly. 

21. Fun and entertainment

Here’s one of the more fun ideas: a literal “fun” fund. You can save in an account just for things in the entertainment realm that you know you’d enjoy. You might not know exactly what event will come up, but by saving even a couple hundred dollars for it, you can be ready when something exciting is available. 

Is your favorite band from your youth going on a once-in-a-lifetime reunion tour? You could use your sinking fund to purchase tickets. It enables you to enjoy this opportunity rather than pass it up. 

Expert tip: Use sinking funds to see your savings progress

Sinking funds are an excellent way to plan ahead for costs that you know are coming up in the future. By separating your savings into individual accounts, you can gain an accurate picture of your progress toward each savings goal. 

Although budgeting in general is awesome for planning and tracking your expenses, sinking funds can provide you with specific savings guidance. You can make as many sinking funds as you wish, depending on what makes sense for your current phase of life. 

Figure out a savings target for each one and contribute something toward that saving goal on a regular basis. Seeing that balance increase each week or month in your separate savings accounts can help you anticipate the accomplishment of reaching the amount of money you need. 

What is the best way to organize sinking funds?

It’s a good idea to organize and stash the money for all your sinking fund ideas in a high-yield savings account or interest bearing account. That way, the money is easy to access and will earn interest as it sits in the account. 

Keep an eye on the balance in each sinking fund. You might set up automatic deposits from your paycheck and then start tracking savings growth monthly. Your bank may even offer an easy way to organize sinking funds within a single savings account, so be sure to check whether that’s an option. 

How much should I put in my sinking fund?

The best way to determine how much to put into a sinking fund is to decide on the total amount of money you’d like to see in the account. It may be several hundreds or thousands of dollars, depending on the type of sinking funds category. 

If you have several months to reach your saving goal, you can divide the total by the number of months to figure out how much to save monthly. This tactic works for many categories, from vacations to events to holidays.

For others, like home maintenance or the “next new car” sinking fund, you might simply settle on a dollar amount each month until you actually need the money. 

What are the sinking fund expense categories?

Basically, sinking fund expense categories are expenses that you can plan for. They’re typically not emergencies, but that doesn’t mean they’re unimportant. And they can help you to “save money live better“!

Things like annual recurring expenses, one-time occasions like weddings or vacations, and replacements of things that wear out (cars, furniture) are great options. 

What number of sinking funds should I have at one time?

There isn’t a fixed number of sinking funds to recommend because it’s a personal finance decision. You get to decide how many sinking funds would be helpful for you. 

The key to the “right” number of sinking funds is, what can you handle? If you had a dozen sinking funds, that might be an awful lot to keep track of. For some people, three to five sinking funds may be the sweet spot. 

Another option, if you have too many things on your list, is to create one large sinking fund for everything. It doesn’t help as much in terms of visualizing your progress toward a saving goal.

However, it may be better to have one sinking fund to dip into instead of stressing about organizing 15 different sinking fund ideas at once!

If you learned more about the various savings categories and want to find out more information, check out these articles next!

Sinking fund categories can help you prepare for the future!

Having a few sinking funds categories can help you manage your finances and ensure you remain debt-free.

You can save your sinking funds in a high-yield savings account, a checking account, or whatever you prefer. The main thing is that you make the calculations in advance for how much things will cost and then save accordingly.

Depending on your needs and lifestyle, you can set up a sinking fund for just about any major expense that you can reasonably anticipate. Pet care, vacations, college funds, self-care, and gift-giving are just some items that might fall on your sinking funds list. 

To take this a step further, learn more about handling money with our articles about budgeting best practices and money mindset.

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