Sinking funds: what they are, and how to stop big bills ambushing you
Christmas has been on 25 December for quite a while now. Here's how to stop it, and every other 'surprise' bill, landing on the card.
Yasin Hasan, founder7 min readMost budgets don't break. They get ambushed.
Not by anything truly unexpected, but by the regulars: the rego renewal, the insurance, the January school list, Christmas. They turn up once a year, so they feel like surprises, and they're big, so they land on the credit card. Then they stay there for a while, gathering interest like a houseguest who has found the good snacks.
A sinking fund is the boring, brilliant fix. Here's what it is, how it differs from ordinary savings, which costs to plan for, and how to work out exactly what to put aside each payday.
What is a sinking fund?
A sinking fund is money set aside, in small regular amounts, for one specific cost with a known (or knowable) date. Instead of finding $900 for Christmas in December, you find $35 every fortnight from January. Same $900. Very different December.
The name is older than it sounds. In the early 1700s, the British government set money aside each year to "sink", or pay down, its debts. The name stuck. The powdered wigs did not.
Sinking fund vs savings vs emergency fund
They're all money you don't spend today, but they do different jobs, and mixing them is how the holiday fund ends up paying for a new gearbox.
- A sinking fund has a cost and a date. It's meant to be spent, on purpose.
- A savings goal is something you'd like, with a looser timeline.
- An emergency fund is for things you can't predict. Ideally it just sits there, being smug.
The test is simple: if you can put it in a calendar, it belongs in a sinking fund.
Why "irregular" costs aren't really irregular
Christmas has been on 25 December for quite some time now. Rego renews on the same date each year. The school year starts in late January with remarkable consistency. These costs are only irregular from the point of view of your pay packet.
And when they're not planned for, they tend to go on credit. More than 1 in 5 Australians use credit cards, loans or buy now pay later to pay for holidays, and for Gen Z and Millennials it's about 1 in 4 (Compare the Market, Sept 2025). After the 2025 holidays, about 1.3 million Australians were in debt from the season, owing $1,581 on average (Finder, Jan 2026).
If you can put it in a calendar, it belongs in a sinking fund.
Sinking fund categories for Australians
You don't need all of these. Pick the ones that have caught you out before; they're the ones that will again.
How to set up a sinking fund in four steps
The maths is primary-school level. The hard part is doing it before the bill, not after.
The formula
(Cost − what you already have) ÷ paydays before it's due = what to put aside each payday.
Aim to be ready a little early. Costs have a habit of arriving before the event: the last accommodation payment, the deposit, the outfit. Being ready a week ahead means nothing has to go on the card in a hurry.
Paid weekly? Same formula, more paydays, smaller amounts. Paid monthly? Fewer, bigger ones. If you'd rather not do the division at all, the free holiday budget planner and Christmas budget planner do it for you, with your own dates.
A worked example: one household's year
Here's a fairly ordinary year of big costs for a household paid fortnightly. Spread across 26 paydays, the whole lot is a single, predictable amount, rather than seven separate ambushes.
About $290 a fortnight looks like a lot sitting on its own. It looks a great deal better than $7,360 arriving in lumps, half of it in December and January. These are example figures; yours will be different, and that's the point of writing them down.
Five ways sinking funds go wrong
- Guessing low. Everyone's Christmas is "about $500" until they add it up. Round up, then add a little.
- Raiding it. The holiday fund is not a "spare" $1,200. Keep it somewhere you won't see it every time you buy lunch.
- Twenty funds on day one. Start with three or four. Enthusiasm is renewable; patience less so.
- Forgetting the date moves. Booking flights moves the cost forward by months. Update the date and the amount.
- Going it alone on shared costs. If six people are going to the beach house, there's no reason you should be the only one with a plan.
Sinking funds work better together
With everything costing more, sharing costs is one of the simplest ways to make plans happen at all: siblings splitting Christmas lunch, mates splitting the holiday house, a family trip home planned by everyone who's going. The sinking fund idea doesn't change. There are just more people putting a little aside each payday.
What helps is everyone seeing the same plan, so nobody becomes the person chasing transfers in January.
Sinking fund questions
What does sinking fund mean?
Money you put aside regularly for a specific cost you know is coming, so it's ready when the bill arrives. The name comes from 18th-century Britain, where governments set money aside to 'sink' (pay down) their debts.
What's the difference between a sinking fund and savings?
A sinking fund has a job and a date: $860 for rego by February. Savings are more open-ended. An emergency fund is for costs you can't predict at all. Most people do better with all three kept apart.
How many sinking funds should I have?
As many as you'll actually keep track of. Many people start with three or four (rego, Christmas, a holiday, insurance) and add more once the habit sticks. One account with a list is fine.
How much should I put in a sinking fund?
The cost, minus what you already have, divided by the paydays before it's due. Aim to have it ready a little early, a week is a good buffer, so nothing ends up on the card at the last minute.
Where should I keep sinking fund money?
Somewhere separate from your everyday account, so it doesn't quietly get spent. Many Australian banks let you open several savings accounts and name them. Compare options yourself; this isn't financial advice.
Do sinking funds work for shared costs?
Yes. A shared Christmas lunch or a group holiday is just a sinking fund with more people. Agree the total and each person's share early, then everyone puts their part aside each payday.
This article is general information, not financial advice. Figures in the examples are illustrations, not averages.