A sinking fund is a dedicated savings pot built up monthly for a specific predictable future expense. The name comes from naval engineering — the idea of steadily building something over time to prevent a crisis.
Identify the expense, its annual cost and when it falls due. Divide the annual cost by 12. Transfer that amount monthly to a separate savings pot. When the expense arrives, you have the money — no credit card, no financial stress.
Savings are general. Sinking funds are allocated. £2,000 in a general savings account creates ambiguity — is that for emergencies or for the holiday? Sinking funds make spending intentional. Use our free sinking funds tracker to set them up.