23 Family-Focused Sinking Funds And Why You Need Them!

Supporting a family is financially taxing. One way to reduce financial stress is by planning for future expenses by implementing a sinking fund. A sinking fund is a savings account with a specific purpose that you fund over time. The purpose of a sinking fund is to identify future planned expenses, determine how much you need to save between now and when the expense is due, then save that much over the weeks, months, years until the target date.

Saving for birthdays is an example of a sinking fund. Let’s say that you want to save $300 for your kid’s birthday in 6 months. That’s $50 a month that you would need to set aside each month for 6 months leading up to the birthday.

Sinking funds are going to vary depending on your household situation. For example, our family of 5 faces much more financial responsibility than it did when we were just a family of 2 (10-years ago).

9 Sinking funds our family uses

  • Emergency fund

  • Vacation and travel

  • Birthdays

  • Christmas

  • Home improvements

  • Property taxes (through escrow)

  • kids sports and activities

  • Date nights

  • Wife’s teaching classroom improvements

14 more sinking funds to consider for your family

  • Mortgage downpayment

  • Initial minimum index fund investment

  • Vehicle purchase

  • Kids college

  • Daycare expenses

  • Medical operations/bills

  • Wedding expenses

  • Veterinarian bills

  • School books & supplies

  • Cell phone purchase

  • Braces

  • Sabbatical

  • Adoption

  • Moving expenses

Calculating how much you need for a sinking fund

Step 1. Determine the future cost

Step 2. Determine the number of intervals (weeks/months) until the expense is realized

Step 3. Divide future expense by the number of intervals

Example sinking fund calculation: I will need $5,000 in 22 months to fund a Walt Disney World Trip for my family of 5 ($5,000 / 22 months = $227.28 per month).

Why you should use sinking funds

Sinking funds break large financial requirements into small, achievable chunks. Sinking funds reduce the burden of having to “come up with” money on the spot and gets you into the habit of planning your finances into the future.

Sinking funds make it easy to afford large expenses

Looking at the example provided above, it’s far easier to save $227 per month for 22 months than it is to come up with $5,000 just before you need to make Disney World reservations. Most Americans don’t have $5,000 in the bank at any given time.

We use sinking funds throughout the year for various expenses. The feeling of knowing that a future financial requirement is "taken care of” is a wonderful feeling.

Sinking funds give today’s dollars a purpose

Sinking funds reduce lifestyle creep by giving purpose to the dollars we earn today. Without a purpose, those dollars could be spent on various lifestyle improvements that may make it difficult to afford future financial events.

What’s the most important sinking fund?

Emergency funds are the most important sinking fund a family can have. An emergency fund is a sinking fund that is set aside specifically for the purpose of covering future emergency (unplanned) expenses.

Even if you’re emergency fund is “fully funded,” it’s a good idea to keep some money going into it each month. Between inflation and the potential for lifestyle creep, it’s nice to know that you always have cash flow dedicated to your emergency sinking fund.


Sinking funds can be a powerful tool in your family’s savings arsenal. The idea of intentionally managing your money for specific purposes is a great way to gain control over your finances.

Sometimes budgeting just isn’t enough to fine-tune your financial life. Being able to further drill down and separate your emergency savings from your vacation savings is powerful.

I truly hope you found this article helpful. Do me a favor and share this on Facebook with your friends and family if you think someone else may benefit as well.

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