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Sinking Funds Explained: How They Work and How to Use Them A large expense does not always mean an unexpected expense. Annual insurance premiums, school fees, festival shopping, vehicle servicing, subscriptions, travel, gifts, home repairs and other irregular costs can often be anticipated months in advance. Yet they can still disrupt a monthly budget because the money is not being set aside before the bill arrives. This is where a sinking fund becomes useful. A sinking fund is money you gradually set aside for a specific future expense. Instead of trying to find ₹30,000 when a large payment suddenly arrives, you might save ₹2,500 a month for 12 months. The expense has not disappeared. You have simply changed when and how you prepare for it . This approach fits naturally into good budgeting because a realistic budget should account not only for regular monthly expenses but also for less frequent costs such as insurance, medical expenses, education, gifts, travel and season...