Sinking Fund

Definition: A sinking fund is a savings strategy where you set aside small amounts of money regularly to cover future, planned expenses. It helps you avoid financial stress by spreading out the cost over time, rather than paying it all at once.

Example: If you plan to spend $1,200 on holiday gifts, you can create a sinking fund by saving $100 per month for 12 months instead of scrambling to find the money in December.

Sinking Funds vs. Emergency Funds:
An emergency fund is meant for unplanned, urgent expenses like medical bills or job loss, providing a financial safety net. In contrast, a sinking fund is for planned, future expenses, such as vacations or car maintenance, allowing you to save gradually for specific goals.

Learn More:

• Discover how to create and use sinking funds effectively in your personal finance plan.