Definition
A sinking fund is money you set aside a little at a time toward a known, future lump-sum cost (annual insurance, holiday gifts, a car repair) so the bill doesn’t crush a single month’s budget when it arrives.
Key ideas
- Target amount + frequency: decide the total needed and how often it’s due (e.g. $600 every 6 months → $100/month).
- Save gradually: instead of scrambling when the bill lands, you’ve already accumulated it through small monthly contributions.
- Often manual or auto: some apps compute the monthly contribution automatically and roll it; others advise you to divide the total by the months before the due date yourself.
- Distinct from an emergency fund: a sinking fund is for expected costs with a known date; an emergency fund is for the unexpected.
Why it matters in a finance app
EveryDollar uses sinking funds for non-monthly spending (free tier includes them); Monarch automates the same idea with its Non-monthly bucket (target ÷ frequency, rolling to the target then zeroing). If you face predictable once-a-year expenses, a sinking fund is the cleanest way to keep them from wrecking a limit-type or zero-based plan that otherwise assumes everything is monthly.