{"id":18700,"date":"2021-06-29T20:00:00","date_gmt":"2021-06-29T12:00:00","guid":{"rendered":"https:\/\/www.comparehero.my\/blog\/uncategorized\/sinking-fund.html"},"modified":"2026-03-26T16:00:37","modified_gmt":"2026-03-26T08:00:37","slug":"sinking-fund","status":"publish","type":"post","link":"https:\/\/www.comparehero.my\/blog\/finance-explained\/sinking-fund.html","title":{"rendered":"What Is a Sinking Fund and Why You Need Them?"},"content":{"rendered":"\n

We\u2019ve covered a ton of strategies to help you shave just a fraction off your spending<\/a>, given some ideas to help you combat that inner impulse spender<\/a> in you, and even some ideas to make some money on the side<\/a>. If you\u2019ve gotten to know all of them, you\u2019d have a pretty good picture of how to structure your finances. Heck, you might even end up with more than you first imagined. <\/p>\n\n

But there is one more component to your financial planning other than your emergency fund and savings account \u2014 A sinking fund. <\/p>\n

What is a sinking fund? <\/h2>\n

In simple words, a sinking fund is the money that you save each month towards something you want to spend on. These are things like birthday parties, vacation, or even renovation plans. What you don\u2019t want to do is tap into your emergency fund or use your credit card. <\/p>\n

Related:<\/strong> 6 Confessions Of A Credit Card Junkie<\/a><\/p>\n

A sinking fund saves you from having to scramble money together at the last minute because you\u2019re already prepared for it. <\/p>\n

Why do I need a sinking fund? <\/h2>\n

We can\u2019t possibly know what\u2019s going to happen in the future, for better or worse. But one extremely likely scenario is that we\u2019ll be faced with an expense that is outside of our usual budget. Maybe a friend of yours is getting married, a typhoon swept the country, or if there was an amazing vacation deal that you can\u2019t miss. That\u2019s just life. <\/p>\n

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When you have a sinking fund, you\u2019ll know that in case anything happens, good or bad, you\u2019ll have some money on standby that is apart from your emergency fund. From the bigger picture perspective, you\u2019ll have a much lower risk of getting into debt and it will help you stay on track with your financial goals or budget calendar. <\/p>\n

Sinking fund vs emergency fund<\/h2>\n

On the surface, it sounds quite similar to an emergency fund<\/a>, doesn\u2019t it? <\/p>\n

Well, the fundamental difference between these two forms is when you would use them. <\/p>\n

Emergency funds are used only during extremely dire situations. It\u2019s crucial protection because you will never know when there will be an emergency and you have absolutely zero control over how much it\u2019s going to cost you. For example, car accidents or an urgent need for surgery. <\/p>\n

Sinking funds, on the other hand, is an event where you can anticipate (most of the time) and plan for. The notion is to remove the element of surprise these events can cause to your savings buckets. <\/p>\n

In short, think of your weekly\/monthly budget as the first level, then the sinking funds as the second level (\u201cmoney-to-blow\u201d), and your emergency fund as the \u201cabsolutely-no-choice-left\u201d level. <\/p>\n

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Sinking fund vs savings account<\/h2>\n

\u201cOkay, what if I just use my savings account instead? Why do I have to go through the trouble of setting up a sinking fund?\u201d <\/p>\n

While mechanically, there isn\u2019t much of a difference between a sinking fund and your savings account, the difference is mainly your desired outcome and easier budget planning. With a sinking fund, you have a specific target that you aim for (mostly short-term); with a savings account, however, it\u2019s geared towards your financial goals (long-term goals). <\/p>\n

Related:<\/strong> High Interest Rates Savings Accounts From Malaysian Banks<\/a><\/p>\n

A huge part of doing this also owes to the psychology of your spending. If you don\u2019t set up a sinking fund, there is a good chance that you\u2019ll exceed your initial budget, which then affects your overall financial planning. <\/p>\n

Examples of sinking funds<\/h2>\n

There are no hard rules for what we can use sinking funds for. After all, we live in a world with a lot of needs and wants. But here are the six most common categories to help you get prepared: <\/p>\n