Finance dictionary / Sinking fund

Sinking fund

Money saved a little at a time for a known future cost.

A sinking fund is savings for something you know is coming: car insurance every 6 months, holiday gifts, a vacation, a new phone. Divide the cost by the paychecks between now and then, and set that amount aside each time.

Unlike an emergency fund, it's for planned costs. When the bill arrives, the money is already there.