Sinking Funds: Never Get Caught Out by Big Bills
Car rego. Insurance renewals. Christmas. These bills aren't surprises - we know they're coming. So why do they always seem to catch us off guard? Sinking funds are the answer.
PayDay Team
11 January 2026
Quick Summary
- • Sinking funds = saving for known future expenses
- • Work out the yearly cost, divide by 12 (or 26 if paid fortnightly)
- • Common funds: car costs, insurance, Christmas, holidays, home repairs
- • Automate the transfers so you don't have to think about it
We've all been there. A bill arrives that you knew was coming, but somehow the money isn't there. Sinking funds fix this by spreading big costs across the whole year, so you're always ready.
What is a Sinking Fund?
Simple Definition
A sinking fund is money you save bit by bit for a specific expense you know is coming. You "sink" small amounts regularly so when the bill arrives, the money is waiting.
The key difference from normal savings? Each sinking fund has a clear purpose. You're not just saving "for the future" - you're saving for car registration, or Christmas, or your next holiday.
Common Sinking Funds for Kiwis
Here are the sinking funds most New Zealanders find useful:
Car Costs
- • Registration (~$120/year)
- • WoF (~$50-70/year)
- • Servicing (~$300-600/year)
- • Tyres, repairs (~$500/year)
Save: ~$80/month
Insurance
- • Car insurance
- • Contents insurance
- • Health insurance
- • Life insurance
Save: varies (~$100-200/month)
Christmas
- • Gifts for family
- • Food and entertaining
- • Decorations
- • Travel to see family
Save: ~$100/month
Holidays
- • Accommodation
- • Flights or petrol
- • Activities
- • Food and spending money
Save: ~$150/month
Other Common Sinking Funds
- Home repairs - Something always needs fixing
- Medical/dental - Check-ups, glasses, dentist visits
- Kids' expenses - School fees, uniforms, sports
- Pets - Vet bills, food, grooming
- Subscriptions - Annual software, memberships
- Gifts - Birthdays, weddings, baby showers
How to Set Up Your Sinking Funds
Step 1: List Your Irregular Expenses
Think through the year. What bills pop up that aren't monthly? What expenses catch you off guard? Write them all down.
Step 2: Work Out the Yearly Cost
Add up how much each thing costs per year. Check old bank statements if you're not sure.
Step 3: Divide by Pay Periods
If you're paid monthly, divide by 12. Paid fortnightly? Divide by 26. Weekly? Divide by 52.
Example: Car Sinking Fund
Step 4: Set Up Automatic Transfers
The magic is in making it automatic. Set up transfers to happen every payday, before you can spend the money on something else.
Automate Your Sinking Funds
PayDay makes sinking funds easy. Set aside 5% for car costs, 3% for Christmas, 4% for holidays - whatever you need. Every payday, the money moves automatically to the right place.
Join the WaitlistHow to Track Your Sinking Funds
You've got a few options:
Option 1: Separate Accounts
Open a savings account for each fund. Clear and simple - you always know exactly how much is in each fund.
Downside: Can be fiddly to manage lots of accounts.
Option 2: One Account + Spreadsheet
Keep all your sinking fund money in one account and track the breakdown in a spreadsheet or app. Less admin, but requires more discipline.
Option 3: Use Your Bank's "Save Jars"
Some NZ banks like ASB and ANZ let you create virtual "jars" or "goals" within one account. Best of both worlds - separate tracking without separate accounts.
Sample Sinking Fund Setup
Here's what a complete sinking fund system might look like for a typical Kiwi:
| Fund | Yearly Cost | Monthly | Fortnightly |
|---|---|---|---|
| Car costs | $1,080 | $90 | $41.50 |
| Insurance | $1,800 | $150 | $69 |
| Christmas | $1,200 | $100 | $46 |
| Holiday | $2,000 | $167 | $77 |
| Medical | $600 | $50 | $23 |
| Total | $6,680 | $557 | $256.50 |
Final Thoughts
Sinking funds turn big, stressful bills into small, manageable amounts. Car rego goes from a $300 surprise to a $25 fortnightly transfer you don't even notice.
The secret is starting. Pick one or two expenses that always catch you out, work out the numbers, and set up automatic transfers. Once you see how well it works, you'll want to add more.
No more scrambling when bills arrive. No more credit card debt for predictable expenses. Just calm, prepared, stress-free money management.
Frequently Asked Questions
What is a sinking fund?
A sinking fund is money you set aside regularly for a specific future expense. Instead of scrambling when car registration is due, you save a little each pay so the money is ready when you need it.
How is a sinking fund different from an emergency fund?
An emergency fund is for unexpected expenses - things you didn't see coming. Sinking funds are for expected expenses you know are coming, like annual insurance, Christmas, or car maintenance.
How many sinking funds should I have?
Most people have 3-8 sinking funds. Start with your biggest irregular expenses - car costs, insurance, and holidays are common ones. You can add more as you get the hang of it.
Should I keep sinking funds in separate accounts?
You can keep them in one account and track the totals in a spreadsheet, or open separate accounts for each fund. Separate accounts make it clearer but can be harder to manage.