Why people mix them up
Many people “save money” without defining what the savings are for. Then a big bill shows up and they pull from whatever is available, feel guilty, and feel like they never make progress.
The fix is not saving more overnight. The fix is having two buckets that solve two different problems.
In short: emergency fund = the truly unexpected. Sinking funds = the expected, but not monthly.
The difference in one sentence
- Emergency fund: for real shocks (what you can’t plan).
- Sinking funds: for predictable-but-irregular costs (what you can anticipate, but not every month).
Both prevent overdraft, but for different reasons.
Concrete examples (so you stop mixing)
Emergency fund examples
- temporary income loss
- urgent medical expense
- critical repair (car you need, heating)
- unexpected family help
Sinking fund examples
- annual insurance
- taxes
- car maintenance, inspections
- back-to-school, birthdays, holidays
- replacing a phone/laptop
- vacations (even if dates vary, it’s not a surprise)
Quick test: “Would I be surprised if this happens at some point?” If not, it’s usually a sinking fund problem.
How to set up sinking funds in 4 steps
1) List your “true expenses”
Start from statements, or simply from experience. A lot of budgets blow up because these costs exist… but stay invisible. This guide helps you spot them: forgotten expenses that cost a lot over a year.
Don’t aim for exhaustive at first. Pick 5–8 items that hurt most when they land.
2) Estimate and turn into a monthly number
For each item:
- estimate the annual cost (or cost per occurrence)
- divide by 12 (or by months until it hits)
Example:
- car insurance: €720/year → €60/month
- car maintenance: €600/year → €50/month
- gifts: €360/year → €30/month
You’re not trying to be perfect. You’re trying to avoid the “everything hits at once” month.
3) Keep the system simple (not 15 accounts)
Two workable options:
- one “sinking funds” area, tracked by categories
- a few separate sinking funds for the top 3–6 items, and the rest grouped
If you get overwhelmed easily, start with 3 sinking funds. Add later.
4) Review every 2–3 months
Life changes, prices change, priorities change. Your sinking funds should follow reality, not a rigid model.
Where the emergency fund fits
If you have no buffer at all, start with a first emergency milestone before creating many sinking funds. Otherwise, the first shock will empty them and you’ll feel back to zero.
Conversely, if you have an emergency fund but no sinking funds, you’ll use the emergency fund for predictable bills… and it will never stay full.
How Boney supports this (without taking over)
- Create one budget per big sinking fund (insurance, car, gifts) and keep them in a Savings/Goals structure.
- Set limits yearly and view them monthly/weekly with automatic temporality conversions.
- Use recurring expenses + future expenses views for items that repeat, so surprises become visible.
- Compare your plan against real spending trends so the system stays realistic.