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A sinking fund is money you set aside regularly for a specific, future expense, helping you avoid debt or large, unexpected costs.
In Depth
Instead of scrambling when a big bill arrives, a sinking fund helps you save gradually over time. You decide on a goal, calculate how much you need, and then divide that by the number of months until the expense. This makes large purchases or irregular bills manageable by breaking them into smaller, consistent savings contributions.
Example
To pay for a new car next year, Sarah started a sinking fund, putting $200 into a separate savings account each month.