October 25, 2023

A sink fund helps prevent debt

What is a sink fund?

I mention sink (or sinking) funds in my blogs to my group some times and often get asked what they are.  It is a tool that I use to help me stay out of debt and attain my financial goals.  Simply, I budget a little bit to put away each month to save for the bigger bills.   That way I do not  have to find all the money at once.  This is not the same as having an emergency fund as that is for unexpected expenses.  The sinking fund helps me pay for expenditure that is expected such as wear and tear on my car eg new tyres, Christmas, holidays, or annual bills like the MOT or insurance.  They are expenses that I know that I am going to have to find in the near future, but it is an organised way of paying for them so that we do not have to put them on the credit card.  I therefore stay out of debt.

How much do I need to put in my sink fund?

I initially worked out how much I needed to put away each month by looking at old bank statements and seeing what I had spent on these kinds of things the years before, and what I could afford from what was left after bills were paid. You might not think that you have any spare money, but every little bit helps and so put away what you can.  When I first started I put more in the account than I thought I could afford, and some months I had to borrow a bit back, but lots of months the extra stayed there as I managed without it.

Each year the amount I save goes up as prices are rising. I also check when the money will be needed, and I spread out the bills through out the year as best as I can. Examples of how I decide how much to put in are as follows. I spend around £750 on holidays and breaks away a year and so this amount is divided by 12 and I put that in the sink fund.  My car cost me £425 for MOT and repairs last year and so this year I am dividing £500 up by 12 this year and putting that into my sink food.  I divide all my insurance up by 12 and add some extra to those and save each month.  That way I can buy annual insurance by using my sink fund as that is cheaper than monthly direct debits.

I now divide my sinking fund into these categories.

Home which this year included buying a new rug for the lounge and some thicker curtains to save energy and keep warmer.  It also included a chimney sweep.

Car as well as the MOT and repairs I try to put a little bit away towards a new car as well as it is getting older. Any spare money left from last month goes in on pay day

Holidays and breaks  I have stuck to the same budget for about 9 years now but borrowed a bit from my savings to have a more expensive holiday this year as I am getting older and inflation is making my emergency savings worth less.  I don’t want to die with money in the bank having deprived myself as my Mum did.


Medical eg dental, spectacles, prescriptions

Presents for birthdays and money for Christmas

Projects on the house eg  decorating, and we needed new glass in a couple of windows this year, and some roof tiles mending.  I also bought some bins as water butts.

Every one is different and will need different categories depending on life style and what is important to them, eg some one working may put money aside for an annual train card.  Back in 2010 I started with my essentials which were car, insurance and medical as I was living pay cheque to pay cheque, and then as my budgeting became better and I paid off debt, I increased the categories so that I felt that I could move forward with projects on the house and have holidays.  A sink fund helps me to save up for things that I want and enables me to live debt free.

If I do not have enough in the sink fund for anything other than the basics, I do without, or I sell something, or get a side hustle and put that money in.  Last year I took some paid writing work for a few month to boost my sink fund.  Without a sink fund I would not have been able to buy an air fryer when I found one half price. I would not have been able to get new glass in my windows.  Money would probably have been spent on other things, but by setting a goal to mend the windows and finding out how much it would cost and saving it,  I managed to get them done this year,  I refuse to use my credit card now unless I can pay it off at the end of the month.  I have been down that slippery slope and am never going there again.

Payday habit

Putting the allotted amount into my sink fund each month is the first thing that I do when my pension is paid into my bank account.  I treat it like any other bill that I have to pay.  A sink fund will not work unless you consistently put the specific amount you need to every month, though it may help you accrue less debt.  I keep my sink fund in an easy access, high interest account and so it also increases slightly.  I know in my head the amount I have saved for each item as I keep strict accounts as every penny has a purpose, but there are bank accounts that will let you divide your savings into different saving pots.  Some people save by putting money in envelopes instead, and other people open multiple accounts.

Odd years I need more than I have actually put away eg. if I have a big car repair, but other years things have cost less and the car has sailed through the MOT needing nothing doing to it.  I leave any extra money put into the sink fund to help pay for the expensive years so that I do not have to borrow much from my emergency fund.

Have you set up a sink fund?  How do you organise yours?


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  1. Lynda October 25, 2023 at 4:31 pm - Reply

    Love this, I also work out what is needed and divide monthly. I only have a very small income monthly as I don’t get my State Pension for another 5 years, think I will feel rich when I get that. Hubby does have his pension so that helps enormously.
    Looking at prescription costs, over 60 is free and if under and you get more than one item per month a pre- payment card can save a lot of money.
    Loving all the help, ideas and advice on your blog and group. Lynda x

    • ToniG October 27, 2023 at 12:50 pm - Reply

      Thanks. Yes I still have a while until the state pension. We will feel so rich when we get them!

  2. Wendy Hallett October 26, 2023 at 6:47 am - Reply

    I love this. Having gone down the slippery route of credit on cards I totally agree and I won’t use them. Once you’ve been there you don’t want to go back. I have a sink fund an emergency fund, unfortunately been used a lot this month , but that’s what is there for. Premium bond account which is for tax and saving towards once we retire. This is such a good article.

    • ToniG October 27, 2023 at 12:46 pm - Reply

      Thanks. It sounds like you are well organised. x

  3. Katie Naden October 26, 2023 at 8:00 pm - Reply

    I’m using a saver account as a sink fund but haven’t considered a dental or specsavers insurance .

    • ToniG October 27, 2023 at 12:45 pm - Reply

      I kept my medical insurance from work as it pays for itself as I get half back towards dental and glasses and get half of private treatment paid, as well as other help with medical costs.

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