How To Use Sinking Funds For Your Personal Finances

Sinking Funds are awesome.  I couldn’t imagine ever not using them again. Here’s why…

If you haven’t heard of sinking funds they are a very practical and efficient way to save money over time for larger bills that don’t come on a monthly basis.  A sinking fund is an account (and by account I mean envelope) you create and pay into every month, as if you were getting a paper bill in the mail to be paid.  Some examples of bills that may not come every month are car insirance, life insurance, homeowners insurance, local city utility bill, vehicle registrations, and property taxes.  Comment after this post if you have other bills that come less often.

By breaking bills down and using sinking funds it lessens stress by ensuring you’ll have the money when the bill comes and creates smaller more realistic amounts to be paid over time rather than one big bill due once or twice a year.


First make a list of all of your bills you receive throughout the year that don’t come on a monthly basis.

Then, go back and put how often you receive the bill (bi-annually, annually, or quarterly) and the amount or average amount due.

Now it’s time to figure out the numbers.

Depending on how often your bills come will change how you divide up payments.  Like my city utility bill that comes once a quarter, this sinking fund actually only lasts three months.  To start this I figured out what the average monthly payment was.  For easy math we’ll say the bill is usually right around $300 each quarter, so each month for 3 months I pay this sinking fund $100, and come the third month there is the $300 to pay the bill!

Car Insurance can be paid every six months.  If your vehicle insurance is $500 every six months, the monthly payment to your sinking fund will be $83.33.  Just kidding, don’t do that.  $84.  This leaves you with enough money to pay the bill in full when it comes as well as treat yourself to ice cream after it’s paid.

Yes, I really do this.

A bill that comes once a year is vehicle registration, say that bill is also $500, $500 divided by 12 monthly payments is $41.67, $42 per month.


Now that you have your numbers all figured out, determine each bills “due date”.  This step is important.  Whatever date the bill is normally due will also be the monthly due date.  This spaces out the payments a month apart and ends your sinking fund around the time you will get an actual bill in the mail.

I like to stick a quarter piece of paper in each envelope that says what the bill is, the total amount that will be due and the month and date it will be due on one side.  On the other side I keep track of the deposits into the sinking fund.  If I put $25 in it the first month I note the date and write $25 beside it.  The next month I write the date I put the money in it with $50 beside it, because $50 is the new total in the sinking fund.

Each month at the bills due date insert cash into your envelope, make your note and walk away, paid.

Finally, when the bill comes in the mail enjoy the relief you have from being able to take the money from your sinking fund and pay the bill in full!

If you start using sinking funds for your bills and love it, later you can implement sinking funds for other things in your life.  Birthday’s, holiday’s, bulk meat purchases, these things come every year, why not make them less stressful and more enjoyable by saving small amounts for them all year long?


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