What is a sinking fund and how do I start one?
A sinking fund saves a little each month for a known future expense.
A sinking fund is money you set aside regularly for a specific, planned expense, such as car maintenance, gifts, holidays or annual bills. It avoids the shock of a big cost all at once.
It is different from an emergency fund, which is for the unexpected.
How to set one up
List irregular expenses for the year, estimate each cost and divide by the number of months until it is due. For example, 1,200 for a holiday in 12 months means 100 per month.
Keep it organised
Use separate savings pots or labelled accounts for each goal.
Benefits
You pay for costs from savings, not credit, and your monthly budget stays steady.
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