How sinking funds can simplify your family finances

Ever had a big expense sneak up on you? It could be holiday gifts, car repairs, or school fees. Enter the sinking fund. It sounds serious, but it’s a helplful way to prepare for those not-so-everyday costs while preserving your emergency savings.

Let’s explore what a sinking fund is, how it works, and how it can make budgeting for your family way more manageable.

What is a sinking fund?

A sinking fund is a smart method to save for an upcoming expense. Instead of scrambling to cover the cost last-minute or turning to credit cards, you set aside a little bit each week or month in a dedicated savings bucket.

Think of it as budgeting in slow motion. You spread the cost out over time, which can make saving feel more manageable. It also helps you avoid tapping into your emergency fund for things that aren't true emergencies.

So, how does a sinking fund compare to an emergency fund?

Sinking fund vs. emergency fund

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While both are forms of saving, they serve very different purposes:

• Emergency fund: Reserved for surprise expenses like a medical bill, broken appliance, or last-minute travel.

• Sinking fund: Meant for expected expenses, like back-to-school shopping, a new laptop, or your annual family road trip.

You’re planning ahead with a sinking fund, so when the bill comes, the money’s already there. That keeps your emergency fund intact and (hopefully) stress levels lower.

Why families love sinking funds

Life with kids is full of predictable surprises (it’s a thing!) A sinking fund helps take the pressure off when those costs pop up because you’ve already prepared.

Here’s why families use them:

• Less financial stress. Minimize last-minute budget scrambling or racking up credit card debt.

• Makes big expenses bite-sized. You plan once, save in smaller amounts, and cut down on unplanned expenses.

• Builds financial confidence. Kids learn by watching. Seeing you prepare for big purchases is a powerful example.

• Encourages teamwork. Some families involve kids in the planning process so everyone contributes.

How to start a sinking fund in 4 steps

You don’t need fancy spreadsheets or finance degrees to start a sinking fund. Here’s a beginner-friendly breakdown:

1. Pick your goal

Start with something specific and realistic, such as new tires, soccer uniforms, summer camp, or a weekend getaway. The clearer the goal, the easier it is to stick with your plan.

Learn how to plan for short-term vs. long-term goals. 

2. Estimate the total cost

Get a rough idea of your total cost. It doesn’t need to be perfect, but make sure it covers everything, including extras like taxes, fees, or travel costs if applicable.

3. Set a deadline and break it down

Figure out when you’ll need the money, then divide the total amount by the number of months (or weeks) until then. That’s how much to save regularly.

Example:

• Goal: $600 for holiday gifts

• Timeline: 6 months away

• Monthly savings: $100

4. Automate your savings (if you can)

Use separate buckets, labeled envelopes, or apps like Greenlight that let you set and track savings goals. Automate transfers so you don’t have to think about it every month.

Examples of sinking funds for families

Need inspiration? These are some of the most common and useful sinking funds for families:

• Birthday parties and gifts

• School supplies and clothing

• Extracurricular activities like sports, music lessons, or dance recitals

• Seasonal costs like summer camp, back-to-school, or holidays

• Home maintenance, like gutter cleaning or a new dishwasher

• Car maintenance or registration renewals

• Family vacations or weekend trips

• Pet care, including vet visits and grooming

If you have multiple sinking funds, it’s helpful to keep each goal organized with labels or categories so you know what each is for.

How sinking funds help kids build money skills

Sinking funds can also be an excellent teaching tool.

When you show your child how to save for something specific, you’re helping them understand patience, goal-setting, and the value of money. It’s one of the most effective ways to turn financial literacy into a family value.

With a Greenlight, they can:

• Set personalized savings goals

• Watch their progress build over time

• Earn money through chores and allowances

• Learn delayed gratification and budgeting

These skills grow with them and set a strong foundation for their financial future.

Teach smart saving habits. From rounding up purchases to setting savings goals — Greenlight's award-winning money app helps families save. Try Greenlight, one month, risk-free.†

This blog post is provided "as is" and should not be relied upon as a substitute for professional advice. Some content in this post may have been created using artificial intelligence; however, every blog post is reviewed by at least two human editors.

*Greenlight Core families can earn 2% per annum, Greenlight Max families can earn 3% per annum, Greenlight Infinity families can earn 5% per annum, and Greenlight Family Shield families can earn 6% per annum on an average daily savings balance of up to $5,000 per family. To qualify, the Primary Account must be in Good Standing and have a verified ACH funding account. See Greenlight Terms of Service for details. Subject to change at any time.