What you'll learn
- Define a sinking fund
- Prepare for non-monthly expenses
Irregular expenses are costs that do not happen every month but still need planning. Annual fees, car repairs, holiday spending, school supplies, and insurance renewals can surprise a budget if they are ignored.
A sinking fund is money set aside gradually for a known future cost. Instead of treating the full amount as a surprise, you divide it into smaller regular amounts.
Example
If a $600 annual expense is due in 12 months, setting aside $50 per month can make the expense easier to handle.
Separate from emergencies
A sinking fund is for expected costs. An emergency fund is for unexpected events. Both can reduce the need to borrow.