A sinking fund is money you set aside gradually for an expense you know is coming, like a car repair, holiday gifts, or an annual insurance premium. It is different from an emergency fund because the expense is planned, not a surprise.
Instead of scrambling to cover a large bill all at once, you divide the total cost by the number of months until it is due and set that smaller amount aside automatically. A 600 dollar expense in six months becomes 100 dollars a month, which is far less disruptive to a budget.
Sinking funds are one of the simplest ways to avoid debt for predictable expenses, since the money is already there when the bill arrives. This article is educational only.