By Priya

October 4, 2021


Show notes

🎙 This week, we’re talking about how to save up for anything (and everything) you want, no matter what your income level is. Sinking funds are a great way to set aside money for all your life goals so that you can build the life you want without having to struggle from paycheck to paycheck or rely on debt and credit cards. But what are sinking funds, how do they work and how can you incorporate them into your financial foundation? 🤔

This episode discusses topics like:

  • What sinking funds are and how they work;
  • How sinking funds can save you from financial ruin and why they form a crucial part of your financial foundation; and
  • How to incorporate sinking funds into your budget and save up for anything you want.


  • Producer: Gonzalo Araya
  • Editor: Gonzalo Araya


Hello hello, friends! And welcome back to Girl on FIRE, the financial independence podcast for independent women. 

My name is Priya, I’m a Chartered Accountant, an analyst and the creator of Paper Money Co. 

I’m also a fierce financial feminist and the host of this podcast. I believe that a woman who is in control of her money, is in control of her life.

This week, we’re going back to basics a little bit and we’re talking about how to save up for anything you want. We’re talking about sinking funds. 

Now, I know that for some of you, sinking funds will be something you can handle with your eyes shut. And that’s great.

But for a lot of you, sinking funds will be totally new, or you know about them but you’re not sure how to incorporate them into your finances. 

And that’s why I wanted to talk about them today because they’re really part of that solid foundation you need to build. It’s part of the budgeting that allows you to start investing and building wealth. 

And you know that I’m all about covering the basics instead of just saying buy some stocks, make millions and retire. Life is never that easy.

If you’re on my email list and you get my Friday newsletter, then you would have seen recently that I said I was going to be adding a new sinking fund to my personal budget next month for buying myself a whole new wardrobe.

And I’m actually currently working on a masterclass all about sinking funds for my Campers. 

But it’s definitely something I wanted to make an episode about instead of just assuming that everyone knows what it is and how to use them.

But before we get started, I want to remind you to head to my website — to download your free copy of my Investing Starter guide 

It’s totally free, you just need to enter in your email address and I’ll send it straight to your inbox. 

It gives you a step by step plan to follow to get your finances ready to start investing, including working with a budget, building an emergency fund and paying off debt.

The sooner you can get your foundation set and get those good money management practices in place, the sooner you can start investing and building your wealth. 

If you’re really serious about learning to master your money, then it’s the perfect guide for you, and I’d hate for you to miss out on it.

As always, Girl on FIRE is about learning, so whip out your favourite notebook or journal and get ready to take some notes. 

If you’re not into writing things out by hand, you can always find the transcript on my website —

I actually can’t believe we’re up to 40 episodes already. And we’re almost at the end of season 1, too.

Okay, let’s dive in!

What are sinking funds?

So, first up, what are sinking funds? And to answer that question, I’m first going to give you a definition of a finance term called sunk costs. 

Sunk costs

A sunk cost is a cost that has already been committed to. So, for example, I don’t want to eat that pizza but I’ve already paid for it. So, instead of letting it go to waste, I’m going to eat it. 

Not that I’ve ever said I don’t want to eat pizza, but you see what I’m getting at. Think of things that are already paid for or that you’ve already committed to paying. 

The party was cancelled but I already bought a new dress so I may as well wear it out and paint the town pink.

This guy isn’t made of the best boyfriend material, but I’ve already given him two years of my life.

Do you see what I’m getting at? A sunk cost is a cost you’ve already committed to. It’s something you’ve already sacrificed. 

Sinking funds are savings for a dedicated purpose

Now, what does that have to do with sinking funds? A sinking fund is basically a savings fund where you’re saving money for a specific dedicated purpose. 

Little by little, you’re putting some money aside in this little piggy bank for a specific savings goal.

It may take you months or it may take you years, but you’re putting money aside for a definable purpose. It’s not just nondescript “savings”. There is an intentionality to it. 

So, you might have a car repairs fund. Or a new clothing fund. Or a fund for your quarterly utility bills. Another really common example is a travel fund.

Sinking funds are a great option for setting money aside for large expenses or unexpected expenses that are possible to prepare for. 

But the idea is that money has already been committed to that specific goal, that specific purpose. 

You’re essentially paying for something in instalments by taking a little bit of money from each paycheck instead of paying for it in one lump sum out of a single paycheck. 

And you get the benefit of paying in instalments without using debt which is a huge bonus because you don’t get slapped with interest. And you don’t damage your credit score or your net worth. 

How sinking funds save you from financial headaches

So, let’s say you’re setting money aside in a car repairs fund. That money is already committed to repairing your car when car repairs eventually come along, like they always do. 

It’s not for renovating your bathroom. It’s not for buying new shoes or taking a pottery class. It’s for repairing your car. 

And when you eventually need new tires, the money is already there. You’ve already saved up for it.

So, let’s say that new tires are going to cost you $600. You have 4 possible choices here. 

Using income to pay for large or unexpected expenses

You could pay for the new tires with the income you receive right now. So, $600 out of your next paycheck will go to buying new tires. 

But then you have $600 less to cover all your other regular expenses like fuel and groceries and childcare and medical costs. 

It’s almost like getting a $600 pay cut in your next paycheck. And you somehow have to get through that and make it to your next paycheck. 

This is often the reason why you might end up living paycheck to paycheck. Something always comes up, and then you have to take on this extra cost and struggle to make it to the next paycheck. But that’s option 1. 

Using credit cards to pay for large or unexpected expenses 

Then you have option 2, which is often seen as the only option and is certainly an easy way out — you borrow the $600. It might be by putting the expense on a credit card. 

Or maybe you borrow the money from a friend or your parents. Or you use a buy now pay later service like AfterPay or you use store lay away.

But you’re borrowing the money to buy the tires now and you’ll have to pay it back later. Which means that you’re taking on debt, you’re taking on future interest payments.

And you’re committing a portion of your future income to pay off that debt. Not to mention, it may impact your credit score and your net worth as well. So, that’s option 2. 

Choosing to delay large or unexpected expenses

Next is option 3 — you just don’t replace the tires. You don’t have the money saved for it, you don’t want to take on debt and you can’t afford to swing it with your next paycheck. 

You decide that you’ll just ride your bike to work until you’ve saved up the  $600 and then you’ll replace your tires. 

Now, if you can’t live without your car, then this won’t be an option for you. You’ll have to go with one of the other 3 options. 

But if you can, then this is a sacrifice you might have to make. 

Using sinking funds to pay for large or unexpected expenses

And then we have option 4. You have a sinking fund that you’ve been contributing small portions to all year, saving up for a situation just like this. 

A special car repairs sinking fund. You take $600 from that fund and pay for your new tires. 

And because you’re using money that you’ve earned and saved in the past, this expense doesn’t impact your current income. 

Which means you don’t have to struggle until next payday. You’re also not taking on more debt and interest payments. And you don’t have to sacrifice using your car for a while either.

Now, I know that was a bit of a long winded example, but I hope that it shows you the power of having money set aside for certain situations. 

It’s really the best option you can choose. It’s the one that causes the least disruption to your life and your finances. 

And I don’t know about you, but for me personally, just knowing that I can handle a cost like that in 10 seconds without having to eat 2 minute noodles or take on credit card debt is really comforting. It’s a relief. 

Now, in this example we were talking about car repairs and yes, you can include costs for repairs like this in your emergency fund which we talked about in episode 6

Priya’s sinking funds

But sinking funds can be used for anything you want to save up for. I’ll use myself as an example here. 

I have sinking funds for all my quarterly and annual bills, because they can usually be quite large amounts. 

I also have a sinking fund for beauty expense like products and salon visits. Because I find that every cream runs out at the same time and sometimes I just like to try new skincare. 

I also don’t get my hair done very often. But I also have very thick hair and I like to keep it long. Which means that getting my hair done can cost a lot.

And I’m happy to pay that cost but having a sinking fund means that by the time I get my hair done, it’s already paid for. 

Because every month, I’m putting aside some of my income in my beauty sinking fund specifically for situations like getting my hair done. 

I also have a sinking fund for travel and one for fun spending. As I mentioned earlier, I’ll be adding one next month for buying new clothes. 

I have another sinking fund for buying a new car when my one eventually needs to be replaced. 

But I have a separate sinking fund for car repairs and maintenance, for renewing my vehicle registration, and my licence. And paying for car insurance.

I’m also thinking of adding a new sinking fund for tech upgrades. I love Apple. I want all their stuff and I’ve been upgrading my tech every 5 years or so.

And $4,000 worth of tech spread out over 60 monthly savings contributions turns a steep mountain into a slow and gradual hill.

So, having money in a sinking fund for that means that I can pay for it with savings and not with income. It won’t eat into my budget because I have money saved up for it. 

FIRE & investment calculator spreadsheet

Before we move on, I want to ask my Girls on FIRE for a favour. If you’ve listened this far into the episode then you’re probably enjoying it, right?

So, here’s what I’d like you to do next. Pause this episode for a few seconds and head on over to

I want you to leave a rating and review for Girl on FIRE because it helps me provide better content based on what you’re enjoying the most.

It helps other women out in the internet wilderness come and find us as well.

And it’s also a great way to support this show for free, and for that I’d love to send you a little something to say thank you.

So, once you’ve done that, take a screenshot of your submitted review and email it to me at

If you do that, I’ll send you a copy of my FIRE and investment calculator. Which, if I do say so myself, is pretty damn amazing.

It’s how I plan for my early retirement and my wealth. It shows me how my wealth is going to grow, when I can retire and how long my money will last.

And it also has a separate tab that takes Australia’s superannuation into account as well. 

And you can use it to analyse companies and different investment options when you’re picking stocks too.

I’ve never actually seen anything like it before, so it’s pretty special. And I’m currently not offering that spreadsheet anywhere else except for Camp FIRE members. 

Not in my shop, not to my email list — it’s a ghost. So, this is kind of a money-can’t-buy type deal.

The only way to get your hot little hands on that spreadsheet is by submitting a rating and a review, taking a screenshot and emailing it to me.

That URL again is I’ve made it nice and easy for you.

So, go hit pause and do that right now. It’s okay, I’ll wait. 

Okay, that concludes my little ad-break, so let’s get back to it.

How do you use sinking funds to save up for what you want

Okay, so now that we know what sinking funds are and why they play such an important part in your overall financial plan, let’s talk about how to use them in a bit more detail.

Step 1: determine your savings goals — what are you saving for?

Now this is something you can do in 4 simple steps. First up, you need to know what you want to save for. That’s step 1. 

And this is going to depend entirely on you — who you are, what kind of life you live, your circumstances and what you want. 

I don’t tell you what to do, you know that’s not me. I like to teach you how to figure it out for yourself.

I will recommend savings goals to you and give you ideas but the only one I will tell you that you must have is an emergency fund. 

And we talked all about emergency funds in episode 6, so go and check that one out if you haven’t already. 

So, step 1: figure out what you want to save for. Maybe you want to save for travel or new shoes or Christmas. Whatever you want. 

Step 2: how much do you need to save & when do you need the money?

Next, you’re going to take each of your savings goals and you’re going to figure out how much you need to save and when you need that money. 

So, for example, let’s say you want to create a birthday basket for yourself like I do. It’s literally just a basket which I fill with things I like and that I buy for myself. 

Let’s say that this year, I want to buy myself $500 worth of presents. Now, my birthday is in November, but I’m not doing my shopping then. 

I’m doing it earlier, in August or September or October. So, for my sinking fund, I want $500 saved by August. 

It’s the same logic that applies when you’re saving up for Christmas. Christmas is in December, but you might do all your holiday shopping in November. 

Or if you’re saving for travel. Your trip might be in October, but plane tickets need to be booked in June. 

So, just keep those little timing differences in mind but once you know how much you need to save and when you need to save it by, your goal amount and your goal date, you can move on to step 3. 

Step 3: how much do you need to save from each paycheck?

In step 3, you’re going to take your goal amount — how much you want to save — and divide it by how many months you have to save for it. 

This will tell you how much you need to save per month. So, let’s say I need to save $10,000 for a huge European vacation and I have 10 months to save all that money. 

That means I need to save $1,000 each month between now and my goal date — $10,000 divided by 10 months is $1,000.

Then, I want you to divide your monthly savings amount by how many paychecks you receive each month. 

So, if I earn only 1 paycheck every month, then for my European vacation, I need to save $1,000 out of that monthly paycheck. 

If I earn 2 paychecks each month, then I need to save $500 out of every paycheck to reach my savings goal.

Step 4: review your budget to see where you can save money

Okay, so now that we know how much money you need to save out of every paycheck for this goal, take a look at your budget and see where you can find that money. 

What can you cut or change? Do you need to earn more income to reach your goal? Look at your budget and see if you can make this savings goal fit.

Now, if it doesn’t fit, you may need to cut back somewhere or increase your income. And if it still doesn’t fit or if that isn’t possible for you to do then you have to adjust your goal. 

You either need to save less, so maybe you take a $7,000 vacation instead. Or you need to save for a longer time period. So, maybe you keep it as a $10,000 vacation but you don’t go next year, you go the year after. 

So, instead of having 10 months to save up you now have 20 months to save up. Which means you need to save $500 per month instead of $1,000.

And then you try to make that fit in your budget. If it still doesn’t work, come back and review your goal again. And you keep repeating those two tasks until it fits in your budget. 

Where to keep your sinking funds

Now, the last thing I want to address in this episode is — I guess — the logistics of saving up for multiple goals. 

There are a few different ways you can do this. I know that a lot of people have separate cash envelopes for each sinking fund. And they add money to those envelopes to save up for those goals. 

You can certainly do that, although, I actually don’t recommend saving up in cash envelopes. 

At the very least because earning 1% interest is better than 0% interest. But you can use cash envelopes for your sinking funds if you want.

You can also keep all your savings for all your goals in one high interest savings account. You’ll just have to keep track of how much you’ve saved for each goal outside in a spreadsheet or a planner. 

Or, you an have a separate savings account for each of your savings goals. It makes it a lot easier to see how much you’ve saved for each goal. 

And it also reduces the risk of spending your travel fund money on buying a new outdoor furniture set. Because the money for each goal is kept separate. 

I would warn you though, to be careful that you’re not being charged fees to open separate accounts like that.

For me personally, cash envelopes are 1000% not my thing. Not for spending and certainly not for saving. 

I have separate accounts for some of the bigger savings goals. For example, for my new car and for my travel fund. Of course, my emergency fund is always in a separate account of it’s own as well.

And then I have another savings account with all of my smaller sinking funds like my beauty fund, my annual bills, my car repairs, my spending fund. My new clothing sinking fund will go in there was well. 

I would have liked a separate account for each and every sinking fund, but my bank limited me to I think 5 different savings accounts.

Next weeks’ episode

And that’s all I have for you Girls on FIRE today!

My challenge for you this week is to set up some sinking funds to save for the things you want. And not just the important things like car repairs. 

Save up for things you enjoy and for things that make you happy. Maybe you want to travel or you want to go on a shopping spree. 

This is one of the most important elements to using your money as a tool to live the life that makes you happy.

On next weeks’ episode we’re going to talk about how to choose which ETFs to invest in.

It’s going to be a super interesting episode so you’re definitely not going to want to miss it.

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The advice shared on Girl on FIRE is general in nature and does not constitute financial advice. The information shared does not consider your individual circumstances. Girl on FIRE exists purely for educational purposes and should not be relied upon to make an investment or financial decision.

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