A sinking fund is savings with a job. Instead of being surprised by an annual insurance premium or holiday spending, you divide the expected amount by 12 and set that aside every month.
Sinking funds smooth cash flow, prevent debt from lumpy expenses, and remove financial guilt from planned spending. Common examples: car maintenance, travel, gifts, subscriptions, home repairs.
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How is a sinking fund different from an emergency fund?
Sinking funds cover expected expenses. The emergency fund covers unexpected ones. Keeping them separate makes both work better.