Sinking Fund Planner

How to calculate a sinking fund?

To determine your periodic contribution, use the following formula: (Target Amount - Current Savings) / Number of Periods. This ensures you are only saving for the remaining gap in your budget over the time you have available.

Sinking Fund vs. General Savings

While general savings is often a 'rainy day' fund with no specific end date, a sinking fund is purpose-driven. By creating separate funds for specific goals, you can spend the money guilt-free when the time comes, knowing it has already been accounted for.

Sinking Fund Example

Imagine saving for a $1,200 vacation in 12 months with $200 already saved.

Step-by-step calculation:

• Subtract current savings: $1,200 - $200 = $1,000 remaining goal.
• Divide by months: $1,000 / 12 months = $83.33/month.

Frequently Asked Questions

What happens if I miss a contribution?
Don't worry. Simply recalculate your goal by dividing the remaining balance by the number of months left. Your monthly payment will increase slightly, but you'll stay on track for your deadline.

Is a sinking fund an emergency fund?
No. An emergency fund is for the 'unknown unknowns' (like job loss). A sinking fund is for 'known' future expenses that you expect to happen, such as car repairs, annual insurance, or holiday spending.

Where should I keep this money?
It is best to keep this money in a high-yield savings account (HYSA) separate from your daily checking account. This keeps the money accessible but removes the temptation to spend it on daily expenses.