Sinking fund calculator
Turn a lumpy future bill — insurance, a car service, Christmas, a replacement laptop — into a flat monthly amount.
Set aside each month
$341.64
for 12 months, to cover 4,800
- You will deposit
- $4,099.68
- Already saved
- $600.00
- Interest helps with
- $100.32
| Target | $4,800.00 |
|---|---|
| Already saved | -$600.00 |
| Still to find | $4,200.00 |
A $4,800 bill twelve months out with $600 already aside needs about $344 a month, and interest covers roughly $100 of it.
Over the life of it
How this is calculated
Grow what you have, then close the gap
What is already saved is grown to the target date first, and the deposit only has to cover the remaining gap. Ignoring that overshoots by the interest the existing balance would have earned anyway.
deposit = (cost − saved · (1+i)^n) ÷ (((1+i)^n − 1) / i)The deposit rounds up
The monthly figure is rounded up to the next cent so the fund lands at or above the bill. On a 12-month $4,800 target, rounding down instead would leave the fund about $2 short in the final month — small, but it defeats the purpose of the exercise.
Worked example: A $4,800 annual insurance bill, twelve months away
| Bill | $4,800 |
|---|---|
| Months away | 12 |
| Already saved | $600 |
| Interest | 4% p.a. |
| Set aside monthly | $344 |
|---|---|
| You will deposit | $4,128 |
| Interest helps with | $72 |
Interest does little over twelve months. The value of a sinking fund is that the bill never lands on a credit card at 20%.
What this assumes
- The cost is the price on the day you pay it.
- Deposits are made every month without fail.
- The fund is not raided for something else.
- Interest is credited monthly.
Where this commonly goes wrong
- Using today’s price for a bill two years away understates it — at 3% inflation a $4,800 bill is about $5,090 by then.
- One account for several sinking funds makes it impossible to tell whether the car fund has been spent on Christmas.
- Annual bills paid monthly by the provider often carry a 5–10% surcharge, which is usually more than the interest a fund earns.
Questions
What is a sinking fund?
Money set aside a little at a time for a known future cost — insurance, car registration, a holiday, replacing a laptop. It converts an irregular bill into a predictable monthly amount so the bill never arrives as a surprise.
How is it different from an emergency fund?
An emergency fund covers things you cannot predict. A sinking fund covers things you can: you know the car service is due in eight months and roughly what it costs. Keeping them separate stops a planned bill from draining the buffer for an unplanned one.
How many sinking funds should I run?
One per genuinely lumpy bill, usually three to six: insurance, vehicle costs, holidays, gifts, home maintenance. Beyond that the admin outweighs the benefit and the funds start being borrowed from each other.
Where should the money sit?
In a savings account separate from everyday spending, ideally one sub-account per fund so each balance is visible. The interest rate barely matters over a twelve-month horizon; not accidentally spending it does.
What if the bill arrives early?
Pay what the fund holds and cover the rest from the emergency fund, then rebuild. That is the emergency fund working as intended — the sinking fund reduced the size of the shock rather than eliminating it.
Should I include inflation in the target?
For anything more than a year out, yes. Set the target at what the item will cost on the day, not today. At 3% inflation a $4,800 bill in 24 months is closer to $5,090.
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Sources
This calculator does arithmetic on the figures you enter. It does not account for tax, fees, or your personal circumstances.
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