Sinking funds can change your life. They radically transformed our budgeting life once we started using them.

You may be getting ready to start several funds now that you know how sinking funds work, but you don’t know exactly which categories you should be using. If you are wondering what sinking funds should you start then you are in the right place.

Many people stumble in the beginning of budgeting with sinking funds but this list of common sinking funds can help you determine which sinking funds you need to make your budget work.

What are sinking funds?

Sinking funds are accounts with a purpose.

They are accounts you save into regularly for spending on expenses that are irregular expense, non-monthly expenses, unpredictable or big one time expenses.

It’s a mini savings account for an expense you know you’ll have in the future.

Sinking funds make saving for these hard to budget items strategic and stress free. You set a little bit aside each month until you hit your goal… and then you spend it!

So if you’re saving up for an event 6 months from now, you put a smaller amount aside into the sinking fund each month until the event where you spend it all. Sinking funds are designed to let you spend without stress or worry.

Common Sinking Fund Categories

Below are some of the most common and often most helpful sinking funds that you can add to your budget.

1. Car Repair Sinking Fund

Car repairs will eventually happen. Every car needs repairs at some point even if it’s just general tire rotations or oil changes. Maintenance on cars is a necessary expenses if you own a car.

You need to be putting money into this car repairs sinking fund account each month so that you are ready when your car needs repairs. Even just $20 a month into this fund can add up and help with the car repairs that do come along.

Without a car sinking fund these unexpected repairs can quickly sink your budget for a month.

2. Car Replacement Sinking Fund

Cars don’t last forever unfortunately. This means you’ll eventually need to replace your current car. Saving up a little bit every month into a car replacement fund will make the purchase of a new car much less painful and will prevent you from going into debt to get a new car when the time comes.

If your current car is paid off you should be at least putting the amount of a regular car payment into your car replacement sinking fund. This will quickly build up when you are saving a payment instead of paying a payment toward a car loan!

3. Home Repairs Sinking Fund

Just like a car, you know your home will eventually need repairs. Because this is an expense that is inevitable, you need to be saving up for home repairs that will come along when you own a home.

Most guidelines suggest you’ll have to pay 1% of the home value price on repairs each year. You can figure out this number based on your home’s value and then divide it by twelve to get an amount to save per month for your home repairs sinking fund.

4. Water Bill Sinking Fund

Many areas have annual or quarterly water bills where several months add up before payment is due. When these big, irregular water bills hit it is helpful to have the money in a sinking fund ready to pay the bill.

Depending on you regular bill price, divide it by the number of months until it’s due and save that amount. You can also do this for other utility bills you may have that are not monthly.

5. Pet Expenses Sinking Fund

For most of us, pets are our family members. Our expensive, expensive family members who require monthly and larger annual expenses.

Your pet may require regular grooming, special medicines for health issues, special diets and foods, and of course regular vet care. That’s not to mention anything like toys, doggy daycare, beds, clothing or any fun pet expenses. Add in an expensive emergency vet visit and you’ll definitely be glad you have a pet expense sinking fund.

We put at least $50 a month into our pet fund which only covers a portion of these pet expenses but it still helps us manage our spending on our dogs.

6. Christmas Sinking Fund

Christmas happens every year so it should not catch you by surprise and lead you into debt. Your Christmas sinking fund can be for gifts but also for things like decor, Christmas cards, foods for special dinners or anything else for the holidays. 

Saving for Christmas in a sinking fund makes it much less stressful around the holiday season. Planning out your Christmas gift list in advance and saving up for Christmas expenses will make it much less stressful during the holidays.

If you’re not sure where to start with planning and saving for Christmas, you can grab the Christmas budgeting planner from my shop or the Christmas savings tracker to help visually plan your savings.

7. Gifts Sinking Fund

Throughout the year we buy gifts for birthdays, weddings, holidays, baby showers, house warmings and more special occasions. While we love gifting those around us with things they will treasure, it can definitely add up and ruin the budget if we don’t plan for it!

Because we still want to give our loves ones gifts, we made a sinking fund for gift giving! We put a little bit into our gifts sinking fund each month and it usually builds up so we can buy gifts when they are needed. Having a sinking fund that builds up allows us to never stress about giving gifts.

8. Clothing Sinking Fund

You might not buy clothes every month, but you will eventually need to buy clothing or shoes as items wear out. Hardly any clothing pieces last a lifetime so you’ll need to plan for buying new clothes and shoes at a certain point.

That’s why this is a great sinking fund category because you are going to need it even if you don’t need it monthly. You can save up a little each month and then eventually buy a higher quality item when you are ready to shop and replace items.

9. Travel Sinking Fund

Travel is generally a high price tag item which is why many people create a travel sinking fund to save up for trips. If you save just $100 a month into a travel sinking fund then you can take a $1,200 vacation each year. $100 a month doesn’t seem like much but it’s amazing what you can do with that amount. If you want to travel more or go on better trips then you can increase the amount you save monthly.

For us, vacations are usually once or twice a year but because the high price tag, they are great sinking fund candidates. We only save when we have a trip planned and know the cost but many people save up a certain amount each more dedicated toward trips.

travel sinking fund

10. Car & Life Insurance Bill Sinking Funds

Many life insurance bills and car insurance bills are due every 6 months, quarterly or yearly. Because they are not a monthly expense, these bills can throw a wrench into a normal monthly budget.

We pay our car insurance every six months, so we put $55 a month into a car insurance sinking fund. Then when the payment is due we withdraw the amount, pay the bill, and start over again! We do the same thing with our life insurance because our life insurance is due quarterly. We put away $35 a month for that quarterly bill and then pay it when the balance has built up.

11. Medical Bills Sinking Fund

Unfortunately medical bills can be a huge financial problem in the United States. Even with good insurance you can have co-pays for appointments, shots, or medications to pay for when you do get sick or hurt. While this is unfortunate, it is also a reality of the world we live in.

A sinking fund (or a medical FSA or HSA) can help make these irregular costs more manageable when they come along. If you have a very high deductible you need to be saving each month into a sinking fund for medical expenses that could come up. Your life will be much less stressful if you have the money saved when a medical emergency strikes.

12. Back To School Expenses Sinking Fund 

If you have kids, then you probably want a “back to school” sinking fund. You’ll need clothes and school supplies when school season rolls around. Kids also have a lot of expenses for signing up for extracurricular activities at the start of the school year.

Back to school can be expensive, especially if you have multiple children to buy for each year. To soften the blow you can save up a little bit each month and you’ll be ready once school runs around.

13. Yearly Renewal Sinking Funds

If you have memberships or subscriptions that renew yearly, they can be put into a yearly sinking funds account. Things like a Costco membership fee, zoo membership fee, Amazon Prime membership are all items that can wreck a monthly budget so saving up for them each month can help keep you on track.

You can create individual sinking funds for each yearly expense item or you can create a “yearly expenses” account where you add up the amount of all items, divide by 12, and save that amount each month.

How do you set up sinking funds?

Setting up sinking funds with Capital One 360 is very easy and super quick! From start to finish they have made the process of setting up sinking fund savings accounts very easy.

If you want to see how we set up our sinking funds, you can see the whole process in the video below.

Setting up sinking funds is a great way to keep your budget together throughout the year so the ups and downs don’t derail you.

Find What Works For You

Once you have set up sinking funds with Capital One 360 you are able to play with the categories you use for your own life. There is no list of sinking funds that will be perfect for you – you have to play around and find which categories you need to use to make your life easier.

You may even want to start with just one sinking fund category to save for and then go from there! One great category to start with can be car repairs or car related expenses. These are irregular expenses that come up for everyone as some time but can be hard to predict.