The Underrated Magic of Sinking Funds

close-up photo of assorted coins

Photo by Josh Appel via

A few weeks back, I posted this photo on my Instagram (which you should follow, by the way: @wrachelwrites):

Sinking Fund Progress.jpg

These categories (car, travel, and gifts) represent the 3 short-to-mid-term things I save up for on a monthly basis, and they are each a line in my budget. In the finance world, we call them “sinking funds,” because it’s money that you’re saving consistently with a purpose of spending in the near future. And they each have a goal amount– I’m aiming to save $10,000 to purchase my next car (if my current car lasts until then), and $1,500 for my next big trip. By Christmas, I’ll have a gift fund of $250 to purchase presents for my family.

These are all expenses that I know will come up. I do “big travelling” yearly, drive a really old car, and celebrate Christmas once a year. None of these things are surprises, so I have the opportunity to plan for them over the course of the year(s) before I spend the money.

The magic of sinking funds is that they make spending something you truly feel like you’ve earned– because you literally have earned it. Not only did you work for your money in the traditional sense, but you created a plan for your income and stuck to it, so it eliminates the guilt of unplanned big purchases– something you guys know I still struggle with, even after getting my financial life together. 

I must add that I also believe in keeping all your sinking funds in separate savings accounts. At least, for me, this is the only way I’m certain to use the money for only what I originally intended to use it for. If I had all of these accounts bundled together in one big savings account, perhaps even with my emergency fund (and I know many people who do this, so no judgement at all), I would almost definitely lose track of what the money was meant to be spent on. For my own organization, I need to have them divided up. If you’re like me, I recommend you do the same. With my bank, I can even name the different accounts based on what they are for: like “Italy Trip 2022” or “Winter Shopping Haul.” This level of specificity is a huge motivator– especially for those fun goals! 

Even if you have a tough time investing for a far-away future or your retirement, creating sinking fund line items in your budget is a fantastic place to start finding your motivation to save. 

If you’re looking for a simple, beautiful way to budget, click below to get my budget template for free.

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