Sinking Fund

A sinking fund is money saved a little at a time for a known future expense, so it stops being an emergency. Car insurance, Christmas, a new laptop, the boiler that is clearly on its last year — none of these are surprises, but they wreck budgets when they land as a single lump. Divide the cost by the months you have: $1,200 of annual expenses becomes $100 a month. The name comes from corporate bonds, where issuers set money aside to retire debt at maturity.