Sinking Fund
Savings set aside in advance for a specific, anticipated future expense.
What is Sinking Fund?
A sinking fund is money saved in small, regular increments specifically for a known future expense — such as a car purchase, vacation, home repair, or annual insurance premium. Unlike an emergency fund (for unexpected costs), a sinking fund is for planned, predictable expenses. By spreading the cost over many months, you avoid taking on debt or raiding your emergency fund. For example, if a new roof costs $6,000 in 12 months, setting aside $500/month creates the sinking fund. Many personal finance advisers recommend multiple sinking funds for different categories.
Example
A household anticipates $1,200 in holiday spending in December. Starting in January, they save $100/month into a dedicated "holidays" savings sub-account. When December arrives, the money is ready with no debt incurred.