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Sinking Fund: If you want to keep your head above water in 2019, you’ve got to start sinking!

..What is a Sinking Fund?

What’s that you say?  Sounds like an oxymoron (a what?). Sinking fund. OK, got your attention? Read on. It’s important.

If there’s one thing I wish Dave Ramsey would rant about more (I love his rants), it’s the importance of having a sinking fund.

This is the account where you save each month to pay for those large and infrequent but predictable purchases that would otherwise blow your whole budget and become an emergency when it comes time to pay for them.

Car insurance and car repairs are two big ones that I hear people freak out about. Christmas shopping is right up there too (who KNEW it always comes in December?).

How to set up and use a sinking fund

Here we will give you more detail about how to set it up, use it, and do the accounting to keep track of it.

I think the sinking fund, for many people, could rival or even surpass the emergency fund as the most important part of their financial plan.

When people call me for advice, it’s often a crisis that prompts them to pick up the phone and ask for help.

Some huge expense is looming and they have no emergency fund or other savings to cover it, and they’ve maxed out their credit cards paying for other so-called emergencies.

And more often than not their crisis is something that should have been at least somewhat foreseen if not precisely predicted as to timing or amount. 


With proper planning, true emergencies are really pretty rare (things like…hmmm….the sudden death of a relative that would require travel expenses for the whole family to attend the funeral…sorry to be morbid but that’s how far I had to go to think of a real emergency).

Having a sinking fund will give you confidence in budgeting and a lot more peace of mind.

The month-to-month and day-to-day budgeting task is not nearly so daunting when you know you’ve got the big ticket budget-busters already taken care of and that surprises are very unlikely to pop up.

So what kind of things should I save for in my sinking fund?


o   Christmas

o   Tires (this is another top item people forget about)

o   Major car repairs

o   Major house repairs (unless you’re renting)


o   Annual property taxes (local, county, school – that school tax is a biggie!)

o   Homeowner’s insurance

o  Umbrella liability insurance

o   Taxes and insurance on a rental property or vacation home


o   Fuel oil, propane, or coal for your furnace

o   Chimney cleaning

o   Furnace or air conditioner maintenance

o   Vacation

o   Season passes/tickets


o   Unusual and ongoing medical expenses

o   Things I couldn’t possibly imagine since they’re unique to your family.  Odd ones for us are the replacement filter for our drinking water (it includes a UV light and costs a couple of hundred dollars), and our legal representation service for concealed carry permit holders, also a few hundred dollars.


o   Car insurance

o   Life insurance

o   Security system

o   Exterminator

o   Gym membership

Separate Sinking Fund

I also would have a separate sinking fund just for buying your next car, only because it is such a large purchase.  Having its own account keeps a certain level of importance attached to it that will increase your focus on saving for it.

And it makes it less likely you’ll rob from that account to pay for other sinking fund items. Which will be a huge temptation as the car savings builds up to a nice fat sum.

Same would go for things like your daughter’s wedding, and for some people, even vacations deserve their own account (I DO hope you’re out of debt if you’re going hog wild on vacations though!)

What NOT to put in your sinking fund

In short: anything that is a monthly expense, and has to remain that way, or infrequent items that are below a certain dollar threshold.

You decide the threshold – what size expense makes you gasp when you learn you have to work it into this month’s budget? $100? $300?

Decide on a figure and stick to it – anything you could predict that would be over that figure needs to have its own line item in the sinking fund.


Do NOT use your sinking fund as an excuse to save up money for things like clothes or other personal items so that you can go on a big spending spree someday.

That is a sure way to defeat the whole purpose of your budget – you surely have more important things to allocate that money to in the short term, like paying off debt or investing more for retirement.

If you were wasting money or overspending on a certain category before you started budgeting, it will not be helpful to just start saving up that same amount for less frequent but even larger spending sprees. When you need (or want, if you’re out of debt) a specific item that is below the threshold you set.

Work that item into your monthly budget when it makes sense.

Don’t budget a set amount every month for something you don’t really need every month. And then find yourself one day saying “Oh lookie at all the money I can spend on XYZ. I haven’t been using in my budget over the last six months. Now I can go hog wild at the store.”

In the long run. You’ll look back and wonder why you haven’t made much progress on your important goals.

Like paying off debt or increasing your savings.

Your Sinking Fund

Nuts and Bolts...

….so you don’t get screwed up.  Sorry for the bad pun. My first installment was more the “why”, and this will be the “how”. If you haven’t read that first one, do it now or this one won’t make much sense to you.

Sinking Fund

So by now, you should have a list of things that you will be saving for in your sinking fund. For example, we have 20 items in ours, as you will see in the picture below. Yep, that’s a lot of items. But once this fund is set up, it’s just SO easy to add another item and save for it this way. I really prefer it to have anything become a budget buster in any given month.

So here’s how to set this up.  I’ve written this assuming you are already using Excel or similar spreadsheet software.

#1 Decide where your sinking fund account will be kept

While it’s not an “investment”, so the interest rate is not hugely important, it still makes sense to get some reasonable interest, and I recommend using one of the online-only banks like Ally.  The current rate with Ally (as of July 2019) is 2.1%.

#2 Figure out how your chosen institution will interface with your regular checking account.

With Ally, we transfer money into the Ally savings account online through the Ally website, and when it comes time to pay for a sinking fund item, we similarly transfer the money back into our checking account and pay the bill or buy the item.

Some of the other online banks have check-writing privileges, thus eliminating the transfer back into your checking account, which is fine too. Just be sure you know how it will work and that you are comfortable with it. We also have our other savings accounts like our emergency fund and car savings set up with Ally, and can access them all through the same portal and even transfer funds between them if we want.

#3  Create a section of your budget spreadsheet

Create a section of your budget spreadsheet to keep track of how much money you have allocated to each line item in your sinking fund. The last tab of our budget is where we do this, and it is cumulative, showing each month’s transfers into and out of the sinking fund account going all the way back to when we started one.  In the first column, list the items, each to a cell, starting with the second or third row, to leave a row for column labels. (See photo).

Second column label “Cumulative Total” Then the columns will go by pairs: Since this is July 2019 the last two (rightmost) columns are labeled July 2019 Input and July 2019 Outgo. Create a row at the bottom and label it “Interest” (as if it were another sinking fund item), and then the next row label “Total”. This row will show you the cumulative total of the whole account, as well as the total for each “input” for a given month and for any “outgo” in a given month. The Cumulative Total column will show you how much of the total in your sinking fund that you have allocated to each item.

#4 Each month you will transfer a lump sum of money into your sinking fund.

That lump sum will be the sum of what you are saving for all the items on a monthly basis. To decide this, divide the expected cost of each item by the number of months until you must purchase or pay for the item.  For example, we fill our heating oil tanks once a year. Say the total cost for the fuel oil is about $1500, so we save $125 each month for a year in order to make that purchase ($125 X 12 months = $1500).

The exterminator is $107 every 3 months (one of those we could handle without the sinking fund, but why bother?), so we put $36 every month into the sinking fund for the exterminator.  Decide the monthly amount for each item in your list. Note that the time frame might NOT be 12 months. For example, if you are starting your Christmas sinking fund in July, then you would only have 6 months to save up for this coming Christmas.

#5 Monthly Amounts

List the monthly amounts for each item in the column marked July Input (when you are doing your July budget). Now copy and paste those same amounts to the section of your budget spreadsheet (probably your first page) where you plan out your July budget (not pictured here). You will need a separate main category in your budget called Sinking Fund where all these items are listed, and where you enter your monthly budget numbers.

Usually, the amounts for sinking fund items will remain fairly stable month to month….that’s kind of the point of systematically saving for these things. But you still have the freedom to make adjustments each month based on circumstances and needs.

#6 Calculate

Use the calculation function in the spreadsheet to make each cell in the Cumulative Total column equal the sum of all cells to its right. That way that column will always show you what you currently have saved up for each individual item – this is why it’s important to enter withdrawals as negative numbers.

Make the bottom cell of that column so that it sums all the items in that column and this will show you the amount you have in the sinking fund as a whole. Copy that calculation across that row and you will then see the monthly amount you are putting into the sinking fund as a total sum in each monthly “Input” column.

#7 When a sinking fund item needs to be purchased or paid for

Remove the money from the sinking fund account and pay for it. Enter that withdrawal in that month’s column marked (for example) July Outgo, making sure to make it a NEGATIVE number in the cell.  I try to make only one withdrawal per month (if needed) to pay for all sinking fund items that will be purchased that month. Often I just combine the Input and Outgo amounts for a given month as one transaction and make a note at the bottom to that effect.

(For example, $2500 total monthly input (sum of all input items), minus $1500 taken out for that fuel oil, means I only put $1000 into the fund, net, this month.) When you withdraw from the sinking fund, you only need to enter the withdrawal on this sinking fund page, not in your budget.  The only thing that affects your monthly budget is the amount you put INTO the sinking fund each month.

#8 Time

The nice part about doing it this way is that you don’t have to have every item 100% funded all the time.  If I only had $1200 saved up for that fuel oil, I could still withdraw $1500 to make the purchase, and let the amount saved for fuel oil go “into the red” and show negative $300. That’s because there is plenty of money in the account (another reason to save for many items), and most of the items aren’t coming due for a while, so there’s plenty of time to make up the shortfall on the fuel oil.

#9 Sinking Fund Interest

Don’t forget to enter the amount of interest the sinking fund account earns each month in its own cell at the bottom of the appropriate monthly input column.

# 10 Rebalance

Occasionally you will want to go in and use one column to “rebalance”, (label the column that way)  moving some money from one or more item allocation to others, due to changes in what you believe will be owed and when.

Just make sure when you do that, that the total at the bottom of that column is zero….no real money added or removed, just juggled around among the categories. This is a good time to then allocate that accumulated interest to another category where you have a shortfall. That’s all I did in the photo…I allocated the accumulated interest to the Miscellaneous/Car repairs line.

Note: The cumulative total amounts you see represent far more than just the activity of the 3 months you see here.  It reflects the entire history of the account. Scrolling backward in the actual spreadsheet would show you all that history.


That’s it in a nutshell. Okay, maybe a coconut shell. If you need clarification, feel free to contact me through my website  Now go forth and start sinking!

Feel free to contact me at with any questions in the meantime.

Fix your money, Fix your life. I’ll help you.

Tags: Sinking fund
Beverly Miller

Beverly Miller (Money Coach Bev) is a Ramsey Preferred Financial Coach who works one-on-one with anyone who has the desire to improve their personal financial situation. You can learn more about her at

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