WiserHours
Menu

Follow your curiosity

Your plan · Lesson 10 of 10

Saving for Known Costs: Sinking Funds and Your Plan

Save ahead for bills you can see coming with sinking funds, then pull the course together in your own saving plan.

FREE LESSON
Cover picture for lesson 10: Saving for Known Costs: Sinking Funds and Your PlanVideo coming soon
The video is not out yet. The written lesson below has the same content.
THE WRITTEN LESSONFollow along at your pace

Your emergency fund is for surprises. But many costs are not surprises: they are on the calendar, and they still hurt when they land in one month. This last lesson shows how to save for them, then pulls the whole course into one saving plan.

Sinking funds

A sinking fund is money you set aside in equal amounts for a cost you know is coming, like an insurance renewal or a holiday. The full amount is ready when the bill is due.

A row of six cards, Month 1 to Month 5 each with a coin and a final card marked Due with a bill. Below, a jar labelled Sinking fund sits beside the words Equal amounts, every month, and the labels Insurance renewal, A holiday and Ready when it's due.(opens the full-size picture)
Equal amounts each month, and the money is waiting on the due date.

The maths

The maths is simple. Divide the cost by the months until it is due. For example, a bill of 600 due in six months needs 100 a month. These plain numbers are only an illustration, and they work in any currency.

Bills due soon cost more at first, because there are fewer months to fill. After the first round, the amount settles at the yearly cost divided by twelve. If you cannot cover them all, fund the nearest bills first.

A bill marked 600 with the working Due in 6 months, 600 divided by 6 equals 100 a month, noted as an illustration with plain numbers. Below, a twelve-slice wheel is labelled Later: yearly cost divided by 12, with a label The first round costs more.(opens the full-size picture)
Cost divided by months left. Later, the yearly cost divided by twelve.

What to save for

Start with the costs that caught you short last year. Common ones are insurance, car tax and servicing, gifts, school costs, dental and eye costs, and yearly subscriptions. Look through a year of statements for payments that did not repeat every month, and note the month each one fell due.

Six cards in two rows: Insurance with a shield, Car tax and servicing with a car and wrench, Gifts with a present, School costs with a backpack, Dental and eye with a tooth and an eye, and Yearly subscriptions with a bill marked YEAR.(opens the full-size picture)
Six common costs that show up on the calendar.

Give each one a name

Give each cost a name. Separate accounts, or labelled pots inside one account, keep the money for its job. A label should make money harder to spend on the wrong thing, not on the right one. Paying the bill from the pot built for it is the plan working. Pots at the same bank usually share one limit of deposit protection, so keep that in mind. Choose as many pots as you can keep track of, which for most people means a handful.

A panel titled One account, labelled pots holds three jars labelled Gifts, Holiday and Insurance. A green dashed arrow runs from the Insurance jar to a bill, with a green tick and the words The plan working.(opens the full-size picture)
One account with named pots, and a bill paid from its own pot.

Longer goals

Money you will need soon belongs in savings. Goals many years away, including investing, are a separate decision, best weighed with a qualified, regulated adviser. This course does not cover them.

Two panels. The left shows a calendar page marked Soon and a jar, labelled Soon: savings. The right shows a mountain path and an hourglass, labelled Years away: a separate decision. A small adviser figure sits below with a label Qualified, regulated adviser.(opens the full-size picture)
Soon means savings. Years away is a separate decision.

Your plan

Now make your plan. It has six parts: your payday transfer, your first target, where the fund lives, your list of emergencies, your refill rule, and one sinking fund to start. Each one comes from a lesson in this course.

A numbered card with six ticked rows: 1 Payday transfer, 2 First target, 3 Where it lives, 4 What counts, 5 Refill rule and 6 One sinking fund.(opens the full-size picture)
Six lines make a complete starter plan.

This course gives general information, not financial advice.

My saving plan

YOUR TURN

Thank you for taking this course, and good luck with your saving.

Read more

Read the full lesson script

In this last lesson, you'll learn to save for costs you can see coming, and make your own saving plan.

A sinking fund is money you set aside in equal amounts for a cost you know is coming, like an insurance renewal or a holiday, so the full amount is ready when the bill is due.

The maths is simple. Divide the cost by the months until it's due. A bill due in six months gets a sixth of its cost each month. Bills due soon cost more at first, then it settles at the yearly cost divided by twelve.

Start with the costs that caught you short last year: insurance, car tax and servicing, gifts, school costs, dental and eye costs, or yearly subscriptions.

Give each one a name. Separate accounts, or labelled pots inside one account, keep the money for its job. Paying the bill from the pot built for it is the plan working.

Money you'll need soon belongs in savings. Goals many years away are a separate decision, best weighed with a qualified, regulated adviser.

Now make your plan. Your payday transfer. Your first target. Where the fund lives. Your list of emergencies. Your refill rule. And one sinking fund to start.

So remember: pay yourself first, build a first month, and give known costs their own pot. Before you go, fill in your saving plan. Thank you for taking this course, and good luck with your saving.