Sinking Funds (envelope system)

HI, can someone explain to me what ‘sinking funds’ are?

I would really appreciate the help. Thank you.


Hi Maura,

Here is the bare bones of what you are asking about, pretty much a labeled envelope system where you put cash in and then save and spend from that, it works well for some. And there are variations on it with pros and cons:

I use them for many things- not sure why they are called sinking funds though!

You put money aside on the regular for an expense you know you will have in the future- vacation, taxes, vehicle registration, summer camp for kids, etc. It’s saving for a specific expense.

For example, I know that my kids go to camp for every summer and it costs me $1600. Every paycheck I put aside about 60$ (I get paid every 2 weeks), and when it comes time to register them, I pull the money out of my envelope and deposit it to checking to pay camp. Once it’s paid, I start with another envelope to save for the next year.

Some people use different ‘buckets’ in their savings accounts for this. It’s all what works for you.

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Here’s another resource from The Penny Hoarder on sinking funds:…geting/sinking-fund/

Basically, it’s a fund you put a certain amount of money in on a regular basis to use towards bigger purchases – anything from a new car to a vacation – or even to pay off debt. Note, that this money is not part of your emergency fund!


i also use envelope and save plus pay my bills works well for me

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