Glossary
Sinking fund
A sinking fund is money saved gradually for a known future expense, such as an annual insurance premium or a replacement laptop, so the payment does not arrive as a shock.
A sinking fund turns an irregular expense into a regular one. You divide the expected cost by the months until it is due and set that amount aside each month.
It differs from an emergency fund in that the expense is expected. Mixing the two is the usual reason an emergency fund never seems to grow.
Related terms
- Emergency fundAn emergency fund is money set aside to cover essential expenses if income stops. You hold it in an account you can draw on the same day, sized in months of expenses, commonly three to six.Read
- Zero-based budgetingZero-based budgeting assigns every unit of income a job: spending, saving or debt repayment, until nothing is unassigned. The budget balances at zero, which describes a plan rather than an empty account.Read
- Fixed expenseA fixed expense is a recurring cost of roughly the same amount each period: rent, a loan instalment, insurance, a subscription. It is predictable, which makes it easy to plan and easy to forget.Read
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