The Beauty of a Sinking Fund



Beauty is in the eye of the beholder and when it comes to personal finance, sinking funds are beautiful. This straightforward tool will allow you to plan for future expenses and have the money to pay for them. If you have ever created a budget but got lost with items that are not paid on a monthly basis, then a sinking fund can help you close the gap. The idea is simple: take an expense that is not paid on a monthly basis, like property taxes, and divide the amount by the number of months leading up to their due date. You may need to estimate the amount of the expense.


Property taxes are due in six months and will cost roughly $900.

$900 / 6 = $150 saved toward the expense each month.

Once you have figured the monthly cost of your expense, you can incorporate it into your monthly budget. Instead of making a monthly payment for your property taxes, which would be impractical, set that money aside in a savings account. Then, when the bill comes due in six months you have the money to pay it. 

This practice leads to better money management and avoids the anxiety of paying for large expenses. Sinking fund principles can be applied to a variety of expenses, such as birthdays and holidays, emergency funds, vacations, and so on. The possibilities are limited only to your imagination and ability to plan. 

Do you already have a sinking fund? Log in to MICPA Connect to share your personal strategies or offer tips for introducing the concept to clients. 

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