Sinking fund
Saving a little each period for a known expense that is not due yet.
A sinking fund is money set aside gradually for an expense you know is coming but is not due this period — car registration, insurance, an annual software renewal, Christmas. Rather than absorbing the whole cost in the month it lands, you divide it across the months before it and save that slice each time. It turns an irregular expense into a regular one.
Worked example
Car registration is $880 and falls in March. Starting in April, you put $74 aside each month. When March comes the $880 is already there, and no other category has to be squeezed to find it. Without the fund, March is a month where something else gives.
Common mistake
Keeping sinking funds in the same mental pot as everyday savings, so the balance looks like progress towards a goal when most of it is already committed to registration and insurance. Track each fund separately or the number flatters you.
Related terms
Zero-based budgeting
Assigning every dollar of income a job until nothing is left unassigned.
Envelope budgeting
Setting aside a fixed amount per category, where what is left carries forward.
Burn rate
How much money you are spending per day or per month, on average.
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