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Sinking funds categories: what to save for, and how much per paycheck

Sinking funds are small amounts you set aside from each paycheck for costs you know are coming but don't pay every month: car registration, repairs, holidays, birthdays, yearly subscriptions, medical bills, school costs. The most common categories are car, home, health, gifts and holidays, yearly bills, kids, pets and personal costs. To fund one, divide what it will cost by the number of paychecks before it's due.

Below: 24 sinking fund categories in 8 groups, how to find the ones that matter for you, the per-paycheck math, a worked example, which to start first when money is tight, and where to keep the money.

What is a sinking fund?

A sinking fund is money saved on purpose for one expected cost. "Expected" is the key word. You know the car registration comes every year, the holidays come every December and the car will need tires at some point. Those aren't emergencies; they're bills that arrive less often than monthly. Without a plan, each one lands on a single paycheck and pushes the rest of the budget onto a credit card.

A sinking fund spreads the cost. A $180 registration due in a year is $6.92 from each of 26 biweekly checks. That's easier to find than $180 in one check.

Sinking fund vs emergency fund vs savings

Keeping them apart matters. If the holiday money sits in the emergency fund, December quietly empties your safety net. If the emergency fund is paying for registration, it was never an emergency fund. For the emergency fund itself, see how much your emergency fund should be and how to build one on a tight budget. If you are still finding the money to fund any of these, start with how to save money living paycheck to paycheck.

24 sinking fund categories, in 8 groups

You won't need all of these. Read the list, mark the ones you paid for in the last 12 months, and that's your list.

Car and getting around

• Registration and inspection. Due once a year or every two years, depending on your state.
• Repairs and maintenance. Oil changes, brakes, tires, batteries. Use what you spent over the last two years, divided by two.
• Car insurance paid every six or twelve months. Many insurers give a discount for paying in full; a sinking fund lets you take it.
• Your next car. A down payment fund, if your car is older and you know a replacement is coming.

Home

• Repairs. Homeowners: water heater, roof, appliances. Renters: the costs your lease puts on you, like a broken window you caused.
• Moving and deposits. First month, security deposit, a truck, utility deposits. If your lease ends within a year, start this one.
• Property tax and home insurance, if they aren't paid through your mortgage.
• Household replacements. A mattress, a vacuum, bedding, a microwave.

Health

• Deductibles and copays. If you hit your deductible most years, it's a predictable cost. Your plan's summary shows the deductible and out-of-pocket maximum.
• Dental and eye care. Cleanings, fillings, glasses, contacts.
• Prescriptions that cost more early in the plan year, before the deductible is met.

Gifts and holidays

• December holidays. Gifts, food, travel, decorations. Usually the biggest one.
• Birthdays. List everyone you buy for and what you usually spend.
• Other celebrations. Weddings, showers, graduations, religious holidays.

Yearly bills

• Yearly subscriptions and memberships. Streaming paid annually, warehouse clubs, software, roadside assistance.
• Renter's or other insurance paid yearly.
• Taxes on side income. If you earn money with no tax taken out, the IRS generally expects estimated tax payments when you'll owe $1,000 or more for the year. Setting it aside from each payment avoids a bill you can't pay in April.

Kids

• Back to school. Supplies, clothes, fees, shoes.
• Activities. Sports fees, uniforms, camp, lessons.
• Childcare gaps. School breaks and summer, when care costs more.

Pets

• Vet visits and vaccines, plus a cushion for the visit you didn't plan.
• Boarding or pet sitting when you travel.

Personal

• Clothing and shoes, including work clothes and boots.
• Tech replacement. Phones and laptops break or age out; a small amount each check means the next one isn't on a payment plan.

Travel and vacations count too, but on a tight budget they come after the ones above.

How to find your own sinking fund categories

A list from the internet is a starting point. Your own statements are the real list. In about 30 minutes:

1. Open the last 12 months of bank and credit card statements.
2. Write down every charge over $50 that didn't happen every month.
3. Group them: car, home, health, gifts, and so on.
4. Add each group up for the year. That's your yearly target for that fund.
5. Note when each one came due, so you know how many paychecks you have.

Most people find 5 to 10 groups. The ones that put you on a credit card or made you late on a bill are the ones that matter most. If you'd like a quick read on where your pay goes first, the free 2-minute money leak quiz asks about your pay and bills and points to the biggest leak.

How much to put in each sinking fund per paycheck

The formula: what it will cost ÷ the paychecks you'll get before it's due = the amount per check.

For costs that repeat every year, use the paychecks in a year:

Round up to the next dollar. The extra cents cover prices that went up since last year.

A worked example: 9 sinking funds on biweekly pay

This example uses round amounts for one household paid every two weeks. Replace each with your own yearly totals from the statements.

$116 a check is $3,016 a year, a little more than the $2,900 in costs. Without the funds, that same $2,900 would land as nine separate surprises. If $116 a check isn't possible yet, that's normal; the next section is for you.

In a zero based budget, this total is one line in every paycheck's plan, set aside before fun money and extra debt payments.

Which sinking funds to start first when money is tight

If you can only set aside $20 or $30 a check, don't split it nine ways. Fund in this order:

1. Costs with a penalty if you miss them. Registration (a ticket or late fee), insurance paid in full (a lapse), taxes on side income (penalties and interest). Start these first.
2. Costs that will happen and can't wait. Car repairs if you need the car for work, medical copays, a lease-end move.
3. Costs with a date you can see. Holidays, back to school, birthdays. You can plan the amount down to what you'll have.
4. Costs you can delay. Clothing, household replacements, tech, travel.

Start with 2 or 3 funds. Add one each time a paycheck has room, or when another cost is paid off. Finished paying off a card? Its payment can become two new funds the next payday. Our debt snowball vs avalanche guide shows when those payments free up.

Starting late: the catch-up math

It's November and the holidays are seven weeks away. Paid every two weeks, that's three paychecks. $500 ÷ 3 = $167 a check, which may not fit. Three options, and you can mix them:

• Shrink the goal to what fits. If $60 a check is what you can spare, this year's holiday budget is $180, and the list gets written to match.
• Use a windfall. A third paycheck in a three-paycheck month, a tax refund or a bonus can fill one fund whole.
• Start next year's fund now. After this year's cost is paid, the next one has a full 26 checks. $500 becomes $20 a check.

What to avoid: putting the gap on a credit card and calling it the plan. If you must use credit, write down the amount and add its payoff to the next budget.

Where to keep sinking funds

Keep the money where you won't see it every time you buy coffee, but can reach it in a day or two:

• One separate savings account, with a tracker. All funds in one account; a note, sheet or notebook shows how much belongs to each. Simple and works at any bank.
• Named buckets or sub-accounts. Some banks and credit unions let you split one savings account into labeled goals, or open several savings accounts with nicknames. Each fund shows its own balance.
• Cash envelopes, if you pay cash for groceries or gifts anyway. Keep the cash safe at home and small; savings in a bank account is insured and cash isn't.

Accounts at FDIC-insured banks (and NCUA-insured credit unions) are covered up to $250,000 per depositor, per institution, per ownership category. Look for a savings account with no monthly fee and no minimum balance; a high-yield account pays more interest, but no fee matters more at small balances.

Move the money on payday, the same day the check lands. Many banks let you set an automatic transfer for the day after payday, which is the easiest way to keep it going.

Spending from a sinking fund, and refilling it

When the cost comes, spend from the fund. That's what it's for. Then:

• If it was enough, keep the same per-check amount; next year's cost has started.
• If it came up short, pay the gap from this check's flexible money if you can, and raise the per-check amount for next year to the real cost.
• If there's money left over, leave it for next year or move it to the fund that ran short. Both are fine; write down which.

An emergency that isn't on your list (the water heater, the dentist) comes from the emergency fund. Refill that before adding new sinking funds.

Mistakes to avoid

• Too many funds at once. Fifteen funds at $3 each is hard to track and easy to quit. Start with 2 or 3.
• Guessing the amounts. Last year's statements beat any list. Use what you really spent.
• Keeping it in checking. Money in the account you spend from gets spent.
• Raiding one fund for another without noting it. It happens; write it down so the fund you borrowed from gets paid back.
• Calling it an emergency fund. Known costs are sinking funds. Mixing them leaves you with no cushion when the real emergency comes.
• Skipping the third paycheck. Paid every two weeks, two months a year bring a third check. It's the easiest money to put into sinking funds; our guide to budgeting biweekly paychecks shows how to plan for it.

Start with the two or three funds that cost you most last year, and add them to each paycheck's plan. If you want to save a steady amount across all your goals, how to save $1,000 a month turns it into a transfer per paycheck. To see where your pay goes before you set the amounts, the free money leak quiz takes two minutes and needs no bank login. More guides for one paycheck at a time are on the Ahead Again guides page.

Budgeting help only. This guide isn't financial, tax or legal advice. For tax on side income, the IRS's estimated tax pages or a tax preparer can tell you what you owe.

Sources

1. Internal Revenue Service, "Estimated taxes" (who must pay: generally if you expect to owe $1,000 or more). irs.gov/businesses/small-businesses-self-employed/estimated-taxes
2. Federal Deposit Insurance Corporation, "Deposit Insurance FAQs" ($250,000 per depositor, per insured bank, per ownership category). fdic.gov
3. National Credit Union Administration, "Share Insurance Coverage." mycreditunion.gov
4. Consumer Financial Protection Bureau, Your Money, Your Goals toolkit: bill calendar and saving tools. consumerfinance.gov