Sinking Fund Calculator
Calculate how much to save each period to reach a future financial goal.
Plan for large expenses like a car, home, vacation, or emergency fund.
What Is a Sinking Fund?
A sinking fund is a dedicated savings account or budget category set aside for a specific future expense. Rather than being caught off-guard by a large bill, you save a small amount each period until you have the full amount ready.
The term originally comes from corporate finance, where companies set aside money to retire (pay off) bonds at maturity. In personal finance, it means the same thing: systematically saving for a known future cost.
The Sinking Fund Formula
To find the required periodic contribution:
PMT = FV × r / [(1 + r)^n − 1]
Where:
- FV = Future value goal (target amount minus what you already have saved)
- r = Interest rate per contribution period (annual rate ÷ periods per year)
- n = Total number of contribution periods
Common Sinking Fund Uses
- Car replacement: Save for your next car so you can pay cash or make a large down payment
- Home repairs: Roofs, HVAC systems, and appliances all eventually fail — save for them in advance
- Annual vacations: Divide the total vacation budget by 12 and save monthly
- Property taxes / insurance: Quarterly or annual bills that trip up unprepared budgeters
- Business equipment: Computers, machinery, vehicles — plan their replacement
- Emergency fund building: Start your emergency fund gradually if you cannot fund it all at once
Why Sinking Funds Work Psychologically
Sinking funds give every dollar a job. Instead of feeling anxiety about upcoming large expenses, you have a clear, pre-funded plan. The money is already earmarked — spending it feels guilt-free because you planned for it.
Where to Keep a Sinking Fund
A high-yield savings account (HYSA) is ideal — your money earns interest while remaining liquid and accessible. Some people use separate accounts or sub-accounts at their bank, one per goal. This is often called the bucket budgeting or envelope method in digital form.
Worked Example
You want to save $8,000 for a vacation in 18 months. You already have $1,500 saved and expect 4.5% annual return (0.375% per month).
FV needed = $8,000 − ($1,500 × (1.00375)^18) = $8,000 − $1,603 = $6,397
PMT = $6,397 × 0.00375 / [(1.00375)^18 − 1] = $339/month