If "emergency" funds keep getting used for Christmas gifts and car services, you don't have an emergency fund problem—you have a sinking fund problem. Here's the difference and why you need both.
Emergency Fund: For the Unexpected
Your emergency fund is for truly unexpected events:
- Job loss
- Medical emergencies
- Unexpected major repairs
- Family crises
Key characteristic: You couldn't have predicted or planned for it.
Sinking Funds: For the Expected
Sinking funds are for expenses that are predictable but irregular:
- Christmas gifts
- Annual insurance premiums
- Car maintenance (MOT, service)
- Holidays
- Birthday presents
- Back to school costs
- Home maintenance
Key characteristic: You know it's coming; you just don't pay for it monthly.
ℹ️ The Difference
Emergency fund: "I couldn't have known this would happen" Sinking fund: "I knew this was coming, I just prepared in advance"
Why Both Matter
Without sinking funds:
- Predictable expenses feel like emergencies
- You raid your emergency fund for non-emergencies
- Emergency fund never stays full
- Actual emergencies put you in debt
With both:
- Predictable expenses are covered
- Emergency fund stays intact
- True emergencies are handled
- No financial surprise is truly surprising
Common Sinking Fund Categories
Annual/Seasonal
- Christmas: Gifts, food, decorations
- Holidays: Annual vacation
- Back to school: Uniforms, supplies
- Birthdays: Your own and others'
Maintenance
- Car: MOT, service, tyres, eventual replacement
- Home: Repairs, appliance replacement
- Tech: Phone, computer replacement
Annual Bills
- Insurance: Car, home, life
- Subscriptions: Annual memberships
- Professional: Fees, licenses
Set Up Your Savings Goals
Use iBudget to track multiple sinking funds alongside your emergency fund.
How to Set Up Sinking Funds
Step 1: List Irregular Expenses
Go through the year and list everything not in your monthly budget.
Step 2: Estimate Annual Costs
How much does each category cost per year?
Step 3: Calculate Monthly Contribution
Annual cost ÷ 12 = monthly sinking fund amount
Step 4: Decide How to Track
- Separate accounts: One for each fund
- One account, spreadsheet tracking: Keep mental ledger
- Budgeting app: Virtual envelopes
Example: Christmas Sinking Fund
- Annual Christmas spending: £600
- Monthly contribution: £50
- January: Start saving
- December: £600 ready, no stress
💡 Pro Tip
Start sinking funds in January when motivation is high. By December, your first Christmas fund will be fully funded and ready.
Priority Order
- Mini emergency fund: £1,000 first
- Essential sinking funds: Car maintenance, insurance
- Full emergency fund: 3-6 months
- All sinking funds: Christmas, holidays, etc.
About iBudget
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