A sinking fund is money set aside every month for a large expense you can see coming. It stops yearly bills from landing on your credit card or eating into your emergency fund.
How to set one up#
- List the yearly or irregular expenses you expect in the next 12 months.
- Divide each amount by the number of months until it is due.
- Transfer the total of those monthly amounts to a separate account or recurring deposit on salary day.
- Pay the bill from that account when it arrives.
| Expense | Amount | Per month |
|---|---|---|
| Health insurance renewal | ₹24,000 | ₹2,000 |
| School fees (second term) | ₹36,000 | ₹3,000 |
| Festival spending | ₹18,000 | ₹1,500 |
| Total | ₹78,000 | ₹6,500 |
Keep sinking funds separate from your emergency fund, so you can see what each one is for.