Sinking Funds, How to Plan for Irregular Expenses

A sinking fund is a monthly set-aside equal to a known yearly cost divided by 12, kept apart from an emergency fund. In the Federal Reserve's 2025 survey, 59% of adults had a major unexpected expense in the prior 12 months, most often a vehicle repair (30%).

1. Why irregular costs cause so much trouble

The Federal Reserve's annual survey of household finances shows how common big, unplanned bills are. In its report on 2025, the Fed found that 59% of adults had at least one type of major, unexpected expense in the prior 12 months. The most common was a major vehicle repair or replacement, reported by 30% of adults, followed by a major house or appliance repair (22%) and unexpected major medical expenses (21%).

The same survey asks how people would handle a hypothetical $400 emergency expense. In both the 2024 and 2025 reports, 63% of adults said they would cover it exclusively with cash, savings, or a credit card paid off at the next statement. The Fed noted that share was unchanged from prior years and down from a high of 68% in 2021.

Vehicle and home repairs feel unexpected in the moment, but over several years they are close to certain. That is the opening for a sinking fund.

2. What a sinking fund is

A sinking fund is money you set aside each month for a specific future expense you already know is coming, or are very likely to face. It differs from an emergency fund, which covers true unknowns like a job loss. Keeping the two separate means a routine car repair does not drain the cushion meant for a real crisis.

3. The math

For each expense: monthly amount = expected yearly cost / 12.

Here is an example with assumed yearly amounts. Use your own past bills to set yours.

Saving $280 a month means that when any of these bills arrives, the money is already there. Nothing has to go on a card.

4. Starting late

If a bill is coming sooner than 12 months away, divide by the months you actually have left. A $900 holiday budget saved over 7 months needs about $128.57 a month; started 3 months out, it needs $300 a month. The earlier you start, the smaller the monthly amount. That is the whole reason to set sinking funds up before you need them.

5. Setting it up

1. List irregular expenses. Go through 12 months of bank and card statements and note anything that does not happen monthly: registrations, insurance, memberships, school costs, gifts, travel, home and car maintenance.
2. Estimate each yearly cost. Use last year's actual amount. For repairs, an average over a few years is more realistic than a single year.
3. Divide by 12 and total it.
4. Automate the transfer. Move the total to a separate savings account on payday, so it is saved before it can be spent.
5. Track balances by category. A simple list or spreadsheet is enough to know how much belongs to "car" versus "gifts" inside one account.

6. Making it fit

If the total feels too large, start with the expenses most likely to hit soon, often the car, and add categories as you can. Even a partial fund lowers how much ends up on high-interest credit when the bill comes.

Some households keep each category in its own savings account so balances are obvious at a glance; others use one account and a running list. Either works, as long as the money is not mixed with everyday checking, where it tends to get spent.

Review the categories once a year. Prices change, the car gets older, and some expenses disappear while new ones appear.

7. Key takeaways

• In the Federal Reserve's 2025 survey, 59% of adults faced a major unexpected expense, most often a vehicle repair (30%).
• A sinking fund saves monthly for known or likely irregular costs, separate from an emergency fund.
• Monthly set-aside = expected yearly cost / 12; in the example, $3,360 of yearly costs becomes $280 a month.
• Starting late raises the monthly amount; a $900 goal needs $300 a month over 3 months but about $129 over 7.
• Automate the transfer to a separate account and track balances by category.