What a sinking fund is
A sinking fund is a pot of money for a cost you know is coming: car insurance, a holiday, birthdays, a boiler service. You save a little every month, so the bill is already covered when it arrives.
How to work it out
Take the cost and divide it by the months until it is due.
- Car insurance of €600 due in 12 months: €50 a month.
- A €1,800 holiday in 9 months: €200 a month.
- Gifts and holidays of €480 a year: €40 a month.
Keep them visible
The idea only works if you can see each pot. In Wollie each one is a savings goal with its own monthly amount, so you can see which ones are on track.
Questions
What is the difference between a sinking fund and an emergency fund?
A sinking fund is for costs you know are coming. An emergency fund is for surprises.
How many sinking funds should I have?
Start with the two or three costs that hurt most when they arrive, then add more as you get used to it.
This guide is general information, not financial advice.