# Sinking funds: how to save for the bills that come once a year

> Keep car registration, insurance and other yearly costs funded with separate sinking funds. Choose the funds, track the money and restart after each bill.

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- Author: Marnix
- Published: 2026-11-01



The insurance renewal lands and, for a moment, the savings balance looks reassuring. Then you remember some of that money is for car registration, and some is already spoken for at Christmas. Sinking funds give each future cost its own amount, so you can see what belongs to which bill and keep the others on track when one gets paid.

## What is a sinking fund?

A sinking fund is money you gradually set aside for a known future cost. The name sounds more complicated than it is. Pick a bill that's coming, decide how much it will cost and when it's due, and put a little towards it each payday so the money's there when the bill arrives.

You can keep it in its own bank account, or keep several funds in one account and write down how much belongs to each. What matters is knowing how much is there for that bill.

An emergency fund is money kept for urgent or unexpected costs. A known renewal belongs in your sinking-fund plan, leaving your [emergency fund](/blog/emergency-fund) available for surprises. If an annual bill is already causing trouble, separating it out now still helps you see what needs attention.

## Which costs deserve their own fund?

Start with costs that would knock your ordinary payday plan around if you had to pay them entirely from that pay. Car registration and an annual insurance renewal are useful candidates when you pay them yearly. A membership or annual software renewal belongs here if you've decided to keep it.

You don't need a separate fund for every small purchase. A modest expense that comfortably fits your normal spending plan might be easier to leave there.

For costs with uncertain amounts, such as a planned car service, mark the target as an estimate and update it when you have a quote. Knowing roughly when maintenance is needed gives you something to plan around, even when the final price is still unknown. A sudden breakdown is what an emergency fund is for.

Christmas works too, but its target is a spending limit you choose. You have more room to change that plan than a bill you've already committed to. The [savings-goals guide](/blog/savings-goals) helps with chosen purchases competing for the same pay.

To work out how much to put in each payday, take the bill, subtract what you've already saved and divide by the paydays left before it's due. A $720 insurance bill with $240 saved and eight paydays to go needs $60 a payday. Then check that fits alongside your everyday costs.

## How many sinking funds should you have?

Start with two or three of the bills that would hurt most if they caught you short. Add another fund later if you find yourself wondering how much is put aside for something.

Keep two costs separate when they have different deadlines or consequences. One “Car” fund looks tidy, but after you pay for a service you can't tell whether there's still enough for registration. You could keep one car account and write down the two amounts separately.

Small costs can share a fund. One gifts fund can cover several birthdays, as long as you know which ones are coming before you've topped it up again. If the first birthday keeps using up the whole gifts fund, set a limit for each one.

For each fund, write down what it's for, how much is saved and how much you'll need by the due date. Add how much you'll put in each payday. “Insurance: $660 held towards $720 by 15 July” tells you much more than “annual savings”.

## Let each fund run to its own date

The example below has three funds: gym membership, insurance and Christmas. Each bill is due in a different month, so each fund fills up at a different time. In this example, monthly paydays are on the first: $20 goes towards gym membership, $60 towards insurance and $50 towards Christmas purchases. That's $130 in the plan each payday.

The year below starts in December with $160 already saved for the $240 gym renewal in March, $240 towards the $720 insurance bill in July and nothing towards $600 of Christmas shopping in November. For the gym, the $160 already saved leaves $80 to find over the four paydays from December to March, so $20 each. Starting from nothing, it would be $60 each.

### Each fund fills up before its own bill

$130 goes in each payday: gym membership $20, insurance $60, Christmas $50. Each bill empties only its own fund. Gym membership starts with $160 saved and insurance with $240. Christmas starts from $0. Balances are after each payday, before any bill later that month.

| Payday | Gym membership (target $240) | Insurance (target $720) | Christmas (target $600) | Payment later that month |
| --- | ---: | ---: | ---: | --- |
| 1 Dec | $180 | $300 | $50 | |
| 1 Jan | $200 | $360 | $100 | |
| 1 Feb | $220 | $420 | $150 | |
| 1 Mar | $240 | $480 | $200 | Gym membership $240 on 15 March |
| 1 Apr | $20 | $540 | $250 | |
| 1 May | $40 | $600 | $300 | |
| 1 Jun | $60 | $660 | $350 | |
| 1 Jul | $80 | $720 | $400 | Insurance $720 on 15 July |
| 1 Aug | $100 | $60 | $450 | |
| 1 Sep | $120 | $120 | $500 | |
| 1 Oct | $140 | $180 | $550 | |
| 1 Nov | $160 | $240 | $600 | Christmas $600 on 15 November |

Notice what happens after March. The membership money gets used, while insurance and Christmas keep building. April's membership contribution starts the next renewal, so it still has a job even though that bill has just disappeared from the calendar.

Christmas is ready in November here because that's when the example's shopping happens. Pick the date you'll start shopping, not 25 December, and aim to have the money by then.

## Where should you keep the money?

You can keep the money together and write down each fund's share, or use separate accounts.

With one account, use a spreadsheet, a phone note or paper to keep track of how much belongs to each bill. Separate accounts show each amount directly, but give you more accounts to look after. Check any fees and access conditions before changing your setup.

A common middle ground is three accounts, for bills, spending and savings, with all your bill funds sharing the bills account. The money also needs to be available where you'll actually pay from by the deadline.

Here is the same example after June's payday: $60 for gym membership, $660 for insurance and $350 for Christmas. Adding those balances gives $1,070, all assigned to future costs.

| Your bill-money record, 1 June after payday | Amount |
| --- | ---: |
| Held for the three funds | $1,070 |
| Gym membership | $60 |
| Insurance | $660 |
| Christmas | $350 |
| Not set aside for anything | $0 |

Every dollar of the $1,070 sits under one fund, so none of it is spare.

Check that your fund amounts add up to what's actually in the account. If that account also contains emergency savings or another goal, give that money its own line before deciding any of it is spare.

If your list says you've saved more than the account holds, find out why before spending from it. The [spending-review guide](/blog/review-your-spending) covers matching transactions across accounts when transfers make the picture confusing.

Keeping each amount beside the bill it's for makes it easier to see what you can spend today.

### See what each amount is for

Clova keeps the money for each bill in view, so a healthy balance never looks like spare cash.

Sample Insurance goal: $660 saved of $720, $60 a pay, due 15 July.

Clova is a budgeting app in development, built around payday. Join the waitlist to hear first. [Join the waitlist](https://getclova.com/)

## When one fund is short or the bill comes early

First check the date the money is actually needed. An early renewal email might still have the original payment deadline. If the deadline has moved forward, a payday after it won't help you pay on time.

In the example, insurance holds $660 on 1 June. If the $720 payment really had to be made on 15 June, that fund would be $60 short, even with $1,070 held across all three funds. July's contribution arrives too late for that earlier date.

Look for money that isn't promised to anything else, or a change to future spending you can actually make before the deadline. If you move money from another fund, update both amounts and check whether the other bill will still be covered. If you borrow from Christmas, lower the Christmas amount on your list too. Then decide whether to spend less at Christmas or put in a bit more each payday to catch up.

If more than one fund is short, cover the bills with real consequences first, such as insurance or registration. Christmas or a gym renewal can usually be trimmed or moved. Don't let the big total fool you. Write down how much each fund is still short.

If the contributions don't fit after your everyday costs, review the whole budget. You may need to reduce a flexible target or ask a biller about payment options.

### If you can't cover the bill

If a bill is unaffordable, contact the biller early to ask what options exist. The [National Debt Helpline](https://ndh.org.au/financial-counselling/what-is-financial-counselling/) offers free, confidential and independent financial counselling on **1800 007 007**.

## Start the fund again once the bill is paid

A lower balance after a planned payment is what the fund was for. Take what you paid off that bill's fund only. The other funds don't change.

Then enter the next expected renewal and review its target. The year chart keeps insurance at $720. The comparison below shows what happens if next year's bill goes up to $780. You start again from $0, so you'd need $65 a month instead of $60 ($780 ÷ 12). Count your actual paydays before setting the new amount.

### Next year's insurance needs $60 more

The fund is $0 after July's payment, then starts again for next July.

| Insurance | Bill | Saved each payday |
| --- | ---: | ---: |
| This July, paid | $720 | $60 |
| Next July, new estimate | $780 | $65 |

Twelve paydays of $65 make $780, so raise the contribution before the first one.

If a bill comes in below the amount saved, keep track of what is left. Leaving it in that fund means you already have a start on next time. If you move it to another fund, update both amounts so you don't count the same money twice.

### When the balance should reach zero, and when it shouldn't



Count the bill payment once. Moving money from the fund to the account you pay from isn't spending. Only the bill is.

A single annual bill uses its fund once per renewal. If the amount saved exactly matches the payment, that fund reaches $0 immediately afterwards. The bank account holding several funds will still contain the other funds' money.

A fund such as gifts has several payments. Reduce it by each actual purchase and keep track of what's left for the other gifts. When a fund reaches its target, you've saved enough for the planned purchases. The purchases may still be ahead of you.

If an optional renewal is cancelled, check whether anything is still owed before you use that money for something else. Keep the old payment details even when you close the fund.



## Keep your funds up to date between bills

On payday, update each balance with what actually arrived. If you missed a payday, note how far behind that fund is and decide whether to catch up or push the plan back.

When a renewal notice arrives, replace the estimate with the actual amount and check whether enough will be ready. After payment, take the bill off its fund and start saving for the next one. Those are the moments to update your list, even if the rest of the year is quiet.

Keep the system small enough that you'll use it. If maintaining separate funds takes more effort than the decisions they help with, combine the smaller flexible funds while keeping the important deadlines visible.

## A note from me

I think a savings balance feels more useful when you can see what you've already promised it to. Using money for the bill you saved it for should feel like the plan working.



The calendar runs from December to November, with twelve assumed monthly paydays on the first. Contributions are affordable by assumption; the example doesn't model a household income or recommend these amounts. All payments, future prices and dates are fictional.

Membership opens at $160, receives $20 each month and pays $240 on 15 March. Insurance opens at $240, receives $60 each month and pays $720 on 15 July. Christmas opens at $0, receives $50 each month and spends its $600 on 15 November. For simplicity, Christmas spending is one payment here. Actual purchases would each reduce its balance.

At each illustrated payday the dots show balances before any payment later that month. For a payment month, deduct that payment before adding the following month's contribution. Membership is $0 immediately after March's payment, then $20 in April. Insurance is $0 immediately after July's payment, then $60 in August.

On 1 June: membership $60 + insurance $660 + Christmas $350 = $1,070. None of it is spare. An earlier $720 insurance payment would leave a $720 − $660 = $60 funding gap on 15 June.

Across the whole window: opening cash $160 + $240 = $400; contributions 12 × ($20 + $60 + $50) = $1,560; payments $240 + $720 + $600 = $1,560. After November's spending, $400 remains: membership $160 and insurance $240. There are no fees, interest, other account money or pending debits in this exercise. They must be included in a real reconciliation.

The next-renewal illustration is an alternative estimate of $780 for the following July, not a change applied to the year chart. It starts from $0 after July's $720 payment. Use the yearly bill converter for a revised contribution against actual future paydays. The Clova card shows the Insurance fund on 1 June: $660 saved of $720, with $60 added each pay and payment due 15 July.

[Budgeting guidance from Moneysmart, the government's free money guidance site](https://moneysmart.gov.au/budgeting/how-to-do-a-budget) supports including irregular costs, checking payment timing and reviewing changed bills. Its [emergency-fund guidance](https://moneysmart.gov.au/saving/save-for-an-emergency-fund) supplies the urgent/unexpected distinction. The [National Debt Helpline](https://ndh.org.au/financial-counselling/what-is-financial-counselling/) supplies the counselling description and contact number. Read on 28 October 2026.

## Common questions

### Can I use sinking funds if my income changes each payday?

Yes. Put in what you can after each pay and keep an eye on how far each fund is from its target. If a quiet pay leaves you behind, top up from a bigger pay or lower a flexible target such as Christmas.

### Should I automate my sinking-fund contributions?

A regular bank transfer is an option if its amount and timing fit your actual pay. Check the money actually moved, and change the amount when a bill or your pay changes.

## Sources

1. [How to do a budget](https://moneysmart.gov.au/budgeting/how-to-do-a-budget) · ASIC Moneysmart · Accessed 2026-10-28
2. [Save for an emergency fund](https://moneysmart.gov.au/saving/save-for-an-emergency-fund) · ASIC Moneysmart · Accessed 2026-10-28
3. [What is financial counselling?](https://ndh.org.au/financial-counselling/what-is-financial-counselling/) · National Debt Helpline · Accessed 2026-10-28

## Related reading

- [How to make a budget in Australia](https://getclova.com/blog/how-to-make-a-budget)
- [How to turn a savings goal into a payday plan](https://getclova.com/blog/savings-goals)
- [Emergency funds: how much you need and how to start one](https://getclova.com/blog/emergency-fund)

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