9 Essential Sinking Funds Categories to Add to Your Budget This Month

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Add this list of sinking funds categories to your monthly budget so you can plan ahead and avoid financial surprises throughout the year!

A sinking fund is a separate savings account with different “buckets” to set aside money for different reasons. The purpose of having a sinking fund is to save for those irregular expenses that come up throughout the year.

Having separate sinking fund categories helps you manage your budget better and avoid surprising, annoying expenses. Forgot about that $600 car insurance premium that’s due every 6 months? Create a sinking fund for it so it doesn’t bust your budget that month!

I love using sinking funds! They help my budget be more consistent each month and prevent irregular purchases from ruining it.

This post is all about why you need sinking funds, where you should keep them, and a list of 9 top sinking funds categories to add to your budget this month.

The Ultimate List of Essential Sinking Funds Categories to Budget for This Month

What is a Sinking Fund?

As mentioned above, a sinking fund is a way of saving for small, irregular expenses throughout the year.

Sinking funds are separate from your emergency fund.

You should keep 3-6 months of expenses in your emergency fund in case of an emergency. This could be a sudden job loss, medical emergency, or large car repair.

Why Should I Use Sinking Funds?

Think of your sinking funds as an insurance policy for your emergency fund. You want to avoid taking money out of your emergency fund at all costs.

Think about it. You know your car will eventually need new tires, you will have to pay your yearly renter’s insurance bill, and you will need to buy gifts for loved ones at Christmas. These type of expenses are irregular, but they are not unexpected.

Your emergency fund is earmarked for unexpected expenses and your sinking fund is for expected, but irregular expenses. See the difference?

Sinking funds are incredibly important for those who don’t have a large margin in their monthly budget. Your budget margin equals your total monthly income minus your total monthly expenses.

If this number is small, you will definitely want a lot of sinking fund categories to save toward since you don’t have much money left over in case an irregular expense comes up.

Sinking funds will help you avoid tapping into your emergency fund or going into debt when something comes up.

Where Should I Keep My Sinking Funds?

I keep all of my savings accounts (emergency fund + sinking funds) in a high-yield savings account with Ally Bank.

These types of savings accounts will give you a much better interest rate than the .01% your local bank likely offers.

High-yield savings accounts are usually offered by online banks, which can be intimidating at first!

As long as the online bank is FDIC-insured, doesn’t have any account or ATM fees, and will easily transfer money to external accounts, you have nothing to worry about.

Right now, interest rates on high-yield savings accounts are creeping up as the Fed raises rates to combat inflation after the pandemic.

You won’t get rich by making 1.5% off your cash savings, but it’s better than the .05% your local bank probably offers.

I personally love Ally because the app is super user-friendly and they have a buckets feature to help you stay organized when saving for financial goals.

A List of 9 Essential Sinking Funds Categories

Now we are going to talk about the 9 essential sinking funds categories everyone should have in their budget.

Some people like to open separate savings accounts for each fund, but I personally don’t want 12 savings accounts to manage.

I have one savings account for my emergency fund and another for all of my sinking funds.

Even though there are many different sinking funds in one place, I keep track of the individual balances using my monthly budget template.

If you’re curious about which sinking fund categories you should add to your budget, keep reading for my list of the 9 most important ones!

1. Car Maintenance

If you drive a car, you NEED a car maintenance sinking fund. Even new cars will need tires and brakes eventually (and tires are expensive).

Set aside $50-$200 a month and use it for oil changes, air filter changes, tires, etc. If you have a large, unexpected repair, that technically gives you permission to use your emergency fund.

But, what if you had a few hundred dollars set aside for an emergency repair to cover that expense completely or to supplement your emergency fund?

A car maintenance sinking fund will give you peace of mind to keep your old car on the road longer while you save a ton of money!

2. Personal Spending

Everyone needs a little blow money in their budget. Even if you’re gazelle-intense on paying off debt, having just $50 a month to use on whatever you want can help you build a more sustainable budget.

I like having a personal spending sinking fund because the money rolls over each month if I don’t use it. If I had a “personal spending” line item in my budget, I’d lose out on that money if I didn’t spend it all that month!

This way, I can decide to either spend or save my personal spending money.

This allows me to save up for something big or go to TJ Maxx and buy something cute for my house whenever I want.

It’s important to not be too restrictive with yourself in your budget, and a personal spending fund allows you some much-needed flexibility!

3. Travel

Having a sinking fund for vacations is important if you love to travel!

If you have a specific trip in mind, estimate the total cost and divide by the number of months you have to save for it. This amount gives you a monthly target to save so you can travel stress-free!

I’ve also found that putting a little money away for travel is beneficial even if you don’t have a specific trip in mind.

You’ll have money set aside for an out-of-town wedding or quick weekend away with friends when the opportunity comes up!

4. Gifts

Forget your sister’s birthday and can’t fit a gift into the budget? Look no further than a gifts sinking fund!

This is also a great place to save for Christmas/holiday expenses early on as well. Think about things like extra food (if you’re hosting) and how much you plan to spend on gifts for your family and friends.

I save $50 a month into this fund and use it for birthday gifts, wedding gifts, and Christmas gifts. If you treat someone to a meal out, this fund is great for that too!

5. Household Items

A household fund is a great way to manage your grocery budget. Save a few dollars a month and do a big Costco run once or twice a year to stock up on laundry detergent, paper towels, toilet paper, etc.

I’m lucky to have a big storage room in my townhouse to store a lot of supplies. It’s nice to know I won’t run out of toilet paper or dish soap when I really need it!

Buying in bulk will also save you money in the long run because you won’t have to run to the convenience store all the time for items you could have stocked up on.

6. Clothing

I don’t know about you, but I try to not shop every month for clothes! Instead, I like to save $100 a month into a clothing sinking fund that rolls over. Then I can go on a shopping spree a few times a year with no guilt!

The amount you decide to contribute depends on your income and priorities. For some, $100 a month might be way too much or way too little! Figure out a clothing budget that works for you.

7. Yearly Premiums/Subscriptions

Everyone has those random premiums that are only due once or twice a year. It’s easy to forget to include them in your budget since they happen so infrequently!

Things like car insurance, renter’s insurance, yearly subsriptions, etc can all be broken down into a “monthly” rate. Take your yearly bills, divide them by twelve, and commit to saving that much in a sinking fund every month.

The money will be ready to go when those bills do come due!

8. Home Maintenance

If you are a homeowner, this fund is super important.

Do you have money set aside for when the water heater goes out or if you need a new stove?

Similar to the car maintenance fund, you might not know exactly when you’ll need this money or what you’ll need it for. But, it’s safe to say that your home will need maintenance at some point.

Try to save 1% of your home’s value per year toward house maintenance. Take that 1% and divide it by twelve months, and you have a monthly amount to contribute to your home maintenance sinking fund!

9. Pets

Skip this one if you don’t have pets. Use a pets sinking fund to save for vet visits, treats, toys, or any other pet-related expenses for your furry friends.

You’ll thank yourself next time your pet needs an emergency visit to the vet or anything else unexpected comes up. The amount you save each month will vary depending on the amount of animals you have and their health situation, etc.

And if you also have pet insurance for your furry friends, consider keeping your deductible for that insurance in a sinking fund so it’s ready to go if/when you have a visit to the vet!

10. Medical (Bonus Sinking Fund Category!)

This one is totally optional and depends on the type of health insurance plan you have.

If you have high-deductible health plan with an HSA, a medical sinking fund might be a good idea to add to your budget.

An HSA is way to save for medical expenses tax-free, but it can also be invested to grow tax-free as well. The money rolls over every year and can be left alone to grow. It basically turns into a 401k when you turn 65, so an HSA can be a great retirement account as well!

If you have the means to set aside some money in a medical sinking fund to pay for expenses out of pocket, you can avoid using your HSA and continue to let it grow.

The less money you withdraw from it, the faster it will grow!

I save around $100 a month for medical expenses such as contacts, urgent care visits, and prescriptions. My insurance covers preventative medical care at 100%, so I don’t have many out-of-pocket health costs.

Again, this one totally depends on your life situation and health insurance plan.

If you are relatively young and healthy with low medical costs, saving for retirement in an HSA while paying for your health expenses out of pocket can be a great strategy!

Of course, if something major happens and I needed to use my HSA, I would.

HSA’s are awesome because they double as a medical emergency fund and a retirement account at the same time! How cool is that!?

Summarizing the 9 Essential Sinking Funds Categories

Sinking funds are a great way to keep your monthly budget more consistent.

By having money set aside for specific purposes, you won’t have to put your next vacation on a credit card or use your emergency fund for a non-emergency.

Are there any other sinking fund categories that you would add to this list?

Car maintenance
Personal spending
Travel
Gifts
Household items
Clothing
Yearly premiums
Home maintenance
Pets
Medical

This post was all about a list of sinking funds categories to help you manage your budget and avoid financial surprises throughout the year.

Do you use sinking funds in your budget or are you planning to after reading this post? Let me know in the comments below!

I’d love to hear from you!

-Megan