Sinking Funds: The Simple System for Irregular Expenses
Stop irregular expenses wrecking your budget. Learn how sinking funds Australia work, with real Aussie costs, a worked example, and the best bank accounts to use.
By Timothy Hirou GaschereauPublished 9 min read
Try it yourself
Heads up: this guide is about the personal finance concept, a dedicated savings pot you build up for planned, irregular expenses. If you're after strata or property-management sinking funds, that's a different beast entirely. Keep reading if you want to stop being blindsided by bills you knew were coming. This is part of a wider guide to saving and budgeting on Snowball Invest.
Quick answer
A sinking fund is a named savings account you contribute to regularly so money is ready when a known-but-irregular expense arrives. It's different from an emergency fund, sinking funds are for predictable costs like rego, insurance and Christmas, emergency funds are for genuine surprises. You set one up by estimating the annual cost, dividing by your pay frequency, and automating a transfer on payday.
In this guide
- →What a sinking fund actually is, and why the naming matters
- →The key difference between a sinking fund and an emergency fund
- →The most common Australian categories, with real annual costs
- →How to set one up step by step, including which bank accounts make it easy
- →A full worked example, and how sinking funds slot into your budget
🏺 What is a sinking fund?
🎯 The essential: A sinking fund is a dedicated savings pot you build up gradually for a specific, known-but-irregular future expense, so the money is already there when the bill lands.
A sinking fund is a dedicated savings pot you build up gradually for a specific, known-but-irregular future expense. You contribute a small amount each pay cycle, so when the bill lands, car rego, an insurance renewal, Christmas, the money is already sitting there waiting.
The name sounds a bit grim, but the concept is beautifully simple. Instead of your budget taking a $1,800 hit in October when home insurance renews, you've quietly been setting aside $69 a fortnight all year. No scramble. No credit card. No stress.
The key distinction from a general savings account is intent. A sinking fund has a specific purpose and a target amount. That naming and ring-fencing is what makes it work psychologically, and it's the same reason our emergency fund guide recommends keeping that fund entirely separate too, though the two serve very different jobs, spelled out fully below.
🌧️ Sinking fund vs emergency fund, the key difference
An emergency fund covers things you can't predict: a sudden job loss, an unexpected medical bill, your hot water system dying on Christmas Eve. A sinking fund covers things you can predict, you just haven't paid them yet.
MoneySmart puts it well: keep your emergency fund for expenses you need to pay quickly when other money isn't available. If it can wait, save up for a few weeks and pay it from saved money instead. Car rego can wait, you know it's coming. That's a sinking fund job, not an emergency fund job.
| Feature | Sinking fund | Emergency fund |
|---|---|---|
| Purpose | Planned irregular expenses | Genuine unexpected shocks |
| Expenses covered | Rego, insurance, Christmas, vet bills | Job loss, medical emergency, urgent repairs |
| Can you predict the amount? | Yes, roughly | No |
| Should you plan for it in your budget? | Yes, it's a line item | Yes, as a savings buffer |
Both are essential. They just do different jobs.
📋 What can you use a sinking fund for? (Common Australian categories)
Almost any expense that's predictable but doesn't arrive every month is a candidate. Here are the most common ones for Australians, with rough annual costs to help you plan:
- Car rego and CTP, roughly $544-$859/year depending on state, NT is cheapest, ACT is most expensive. A standard passenger car in most states sits around $700-$777/year.
- Car servicing, around $440-$490/year for two routine services (minor service roughly $220-$245 each). Budget more if you're due for a major service or tyres.
- Home and contents insurance, national averages range from about $1,600-$2,800/year depending on your insurer and location. Canstar's 2025 national average for combined cover was $2,795.
- Christmas and gifts, Australians spend anywhere from $360 to $707 per person on gifts in December, depending on the survey. A conservative budget of $500-$600 is a solid starting point.
- Holidays and travel, highly variable, but even a modest domestic trip can cost $1,500-$3,000 for a couple. Set a target and work backwards.
- Pet vet bills, dog-owning households average around $631/year on veterinary services, cat households around $388/year. Budget $400-$1,200/year for a healthy dog and $300-$800/year for a cat, more if they're older or accident-prone.
- Back to school, Finder's 2024 data puts the total cost at around $2,547/year for a primary school child and $4,793/year for a secondary student, including uniforms, excursions, technology and supplies. Even if you're only covering supplies, it's $684 (primary) to $1,132 (secondary) per child.
- Annual subscriptions and gym memberships, streaming services, software, gym fees. These often auto-renew and catch people off guard. Add them up, they're usually $500-$1,500/year in total.
If you're looking at that list thinking you've been raiding your emergency fund for all of these, you're not alone. That's exactly the problem sinking funds solve.
🪜 How to set up a sinking fund, step by step
This takes about 20 minutes the first time. After that, it runs on autopilot.
1. List every irregular expense you expect in the next 12 months. Check last year's bank statements, you'll find things you'd forgotten about.
2. Estimate the annual cost of each, using the figures above as a starting point, then adjust for your situation.
3. Divide by your pay frequency to get your contribution per cycle: monthly, divide by 12; fortnightly, divide by 26; weekly, divide by 52.
4. Open a named savings account or savings pocket for each fund. The naming is crucial, "Car Rego 2026" feels very different to a generic savings account you'll dip into.
5. Automate the transfer on payday. MoneySmart recommends setting up a scheduled transfer to a separate savings account so the money moves before you can spend it. Keeping your savings in a different account from your spending makes it easier to track your money and harder to dip into your savings.
6. Leave it alone until the expense hits. That's it. When the bill arrives, the money is there.
Which Australian banks make this easy? Some let you create multiple named pockets inside a single savings account, which is ideal. Up Bank offers up to 50 named Savers with Pay Splitting to automatically direct your pay to each one on arrival. NAB Saving Spaces lets you set up to 30 Spaces linked to one eligible NAB iSaver or Reward Saver account, with a Sorting Rule to automatically allocate incoming funds across them. ANZ Plus Growth Saver offers up to 99 savings goals within one account, with round-ups and regular transfer options. CommBank and ING don't have true in-account pockets, but you can achieve the same result with multiple named savings accounts, CommBank's GoalSaver or ING's Savings Maximiser both work well, and ING allows up to 9 separate accounts per customer.
🥧 50/30/20 Budget Calculator
See exactly how much room your take-home pay has for sinking fund contributions each pay cycle.
🧮 A simple worked example
Meet Sarah. She's 28, lives in Melbourne, and is sick of being blindsided by bills she knew were coming. She sits down and lists her main irregular expenses for the year.
| Category | Annual cost | Per fortnight |
|---|---|---|
| Car rego + CTP (VIC) | $777 | $29.88 |
| Car service x 2 | $460 | $17.69 |
| Home & contents insurance | $1,800 | $69.23 |
| Christmas & gifts | $600 | $23.08 |
| Total | $3,637 | $139.88 |
Sarah gets paid fortnightly, 26 pay cycles a year, so she needs to set aside $139.88 per fortnight across four named savings pockets. She opens four Savers in her Up Bank account, "Car Rego," "Car Service," "Home Insurance" and "Christmas," and sets up four automatic transfers on payday. Done.
When her rego renewal arrives in August, the $777 is sitting there. She pays it in two minutes and moves on with her day. No credit card. No stress. No robbing one fund to cover another. That's the whole system.
🧩 How sinking funds fit into your budget
Sinking funds are a tactic, not a budgeting method. They slot neatly into whatever system you're already using, or planning to use.
Under the 50/30/20 rule, sinking fund contributions typically sit in the "needs" bucket, rego and insurance are non-negotiable, or the "savings" bucket, Christmas and holidays are wants you're planning for.
Under zero-based budgeting, sinking fund contributions become named line items in your budget, giving every dollar a specific job before the month begins.
The beauty is that once you've set up the automation, these contributions just happen. Your budget reflects reality, including the irregular bits, rather than pretending every month is the same.
⚠️ 3 common sinking fund mistakes to avoid
1. Lumping all sinking funds into one account. If your "irregular expenses" savings account holds your rego money, your Christmas money and your insurance money all mixed together, you've lost visibility. You'll end up borrowing from one fund to cover another. Named, separate pockets are the whole point.
2. Forgetting to account for inflation and cost increases. Car rego fees go up. Home insurance premiums have risen sharply, Canstar tracked a 14% increase in combined home and contents insurance between 2024 and 2025 alone. Review your sinking fund targets every year, ideally in January.
3. Raiding the fund for something else. Treat each sinking fund as ring-fenced. If you want to save for something spontaneous, open a new fund for it, don't cannibalise an existing one.
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❓ Frequently asked questions
How is a sinking fund different from a savings account?
+
It is a savings account, the difference is intent and naming. A generic savings account is easy to raid for anything. A named fund with a specific target amount has a job.
How many sinking funds should I have?
+
As many as you have distinct irregular expenses. Start with your three to five biggest annual bills, rego, insurance and Christmas are usually the obvious first three.
Should my sinking funds earn interest?
+
Yes, use a high-interest savings account rather than a transaction account. Competitive savings accounts can offer 5% p.a. or more, versus 0-1% sitting in a everyday transaction account.
What if I can't afford to fund all of them at once?
+
Start with the most time-sensitive or highest-cost one first, then redirect that contribution to the next priority once the first fund is fully sorted.
Can I use a sinking fund for irregular income, not just expenses?
+
Yes, this is sometimes called income smoothing. Set aside money in high-income months to cover low-income months, using the same named-account mechanic.
Do I need a separate bank account for each sinking fund?
+
Not necessarily. Apps like Up Bank and NAB let you create named pockets within one account. Otherwise, multiple named savings accounts achieve the same result.
What's the difference between a sinking fund and a term deposit?
+
A sinking fund involves ongoing contributions and stays accessible. A term deposit is a lump sum locked away for a fixed period, which isn't a good fit here since you need access the moment the bill arrives.
📚 Recommended reading
The Barefoot Investor
Scott Pape
Australia's best-selling money book ever. A simple system for accounts, budgeting, debt and a real emergency fund in one.
The Richest Man in Babylon
George S. Clason
The original pay-yourself-first playbook, dressed up as ancient Babylonian parables. Almost a century old and the advice still lands.
The Total Money Makeover
Dave Ramsey
A no-nonsense, step-by-step plan for smashing debt with the snowball method and building a real emergency fund. The tough-love budgeting works anywhere, just use the ATO and super instead of his US tax tips.
Some links above are affiliate links. If you buy through them, Snowball Invest may earn a small commission at no extra cost to you. We only recommend books we'd suggest anyway.
Sources
- 1. How to do a budget, Moneysmart, Australian Securities and Investments Commission
- 2. Simple ways to save money, Moneysmart, Australian Securities and Investments Commission
- 3. Save for an emergency fund, Moneysmart, Australian Securities and Investments Commission
- 4. Savings accounts, Moneysmart, Australian Securities and Investments Commission
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Timothy Hirou Gaschereau
Founder of Snowball Invest, not a financial adviser.
I write about what I'm learning myself, because nobody ever taught us how to take control of our own money. It's a skill, not a mystery, and it's never too late to learn it. The best day to start was yesterday, the second best is today.
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