In December 1909, three workers from a shoe factory walked into the Carlisle Trust Company, a small bank in Pennsylvania, with an odd request. They wanted one account for themselves and their coworkers. Each person would put in a few cents a week, a little more every week, and nobody would touch the money for fifty weeks. Then it would be handed back, just before Christmas.
The bank’s treasurer, Merkel Landis, liked the idea so much that a week later the bank offered it to the whole town. It was called the Christmas Savings Club. According to Rutgers University Libraries, which collected Landis’s own account, it is said to have brought the bank 350 customers, and the idea spread through the banking industry.
Look at the numbers and the plan is tiny. Someone who started at five cents and added five cents each week had put in $63.75 after fifty weeks. Nothing clever happened to that money. The clever part was the calendar: those workers knew, in December, exactly which bill would arrive the next December, and they started paying it fifty weeks early.
That is a sinking fund. The name is old accounting language, and the idea is the one from the shoe factory: money set aside a little at a time for an expense you already know is coming.
The bill that is not a surprise
Car insurance comes twice a year. The holidays fall on the same date every year. School starts when it always starts. None of these is an emergency, and still they feel like one, because a monthly budget has no line for a bill that shows up once.
The CFPB, the US consumer finance agency, puts it plainly in its Your Money, Your Goals toolkit: “It’s also important to save for periodic expenses (those that come only once or a few times a year) like renters insurance, income taxes, car insurance, or children’s school supplies. While they’re not unexpected, these expenses can be difficult to pay for all at once if you haven’t been setting money aside for them.”
Difficult is a fair word. In the Federal Reserve’s 2025 household survey, 63 percent of adults said they would cover a $400 emergency expense using only cash, savings, or a credit card paid off at the next statement. The other 37 percent would need to borrow, sell something, or could not pay it at all. The $780 insurance payment in the example below is almost twice that amount.
One list, one division
The whole method is one formula:
amount ÷ months until it is due
Take a year that looks familiar. Each line is a bill you could have named last January:
| Expense | Yearly | Monthly |
|---|---|---|
| Car insurance ($780, twice a year) | $1,560 | $130 |
| Holiday gifts and travel (December) | $900 | $75 |
| Car registration and maintenance (spring) | $480 | $40 |
| Back-to-school (August) | $360 | $30 |
| Annual renewals | $240 | $20 |
| Total | $3,540 | $295 |
Read the last row twice. This household spends $3,540 a year on bills that never appear in its monthly budget. That is $295 a month that is already spent. It just has not left the account yet.
That last point changes how the fund fits in a budget. A sinking fund is not savings in the usual sense. It is spending on a schedule. In a 50/30/20 budget, car insurance still belongs with needs and holiday gifts still belong with wants. The fund only moves the payment from one painful month to twelve quiet ones.
What the card costs instead
When there is no fund, the bill usually goes on a credit card. Here is the honest arithmetic for the $900 holiday line. The rate comes from the Federal Reserve’s G.19 release: accounts that were charged interest paid an average of 22.15 percent in the second quarter of 2026.
- Saved ahead: $75 a month for twelve months. Total paid: $900.
- Charged in December, paid off in twelve months: $84.30 a month. Total paid: $1,011.60. The extra $111.60 is interest.
Put the whole $3,540 list on the card the same way and the interest is about $439 a year.
The interest is real, but it is not the worst part. Look at the order. With the card, you spend January to December paying for last December. The next December arrives the month you finish. You are always one year behind, and the card balance never reaches zero. With the fund, you pay the same twelve payments, a little smaller, and you are one year ahead.
If a card balance is already there, start with how credit card APR works. Splitting the bill into installments at checkout has the same problem in a different shape: buy now, pay later plans stack up and you are still paying after the purchase.
Not your emergency fund
It is tempting to keep one pile of savings for everything. The trouble is that the December bill then empties the money meant for a broken fridge. The CFPB toolkit asks for a clear line between the two: “If you decide to save money for a goal, make sure the money you’re saving is separate from your emergency fund.”
Three questions sort any expense:
- Do you know it is coming?
- Do you know roughly when?
- Do you know roughly how much?
Three times yes is a sinking fund. A no on the first question is a job for your emergency fund. The order matters too: build a small emergency cushion first, because an unplanned bill will otherwise eat whatever the sinking funds have collected.
If you are starting late
The formula uses the months that are left, not twelve. That makes a late start more expensive each month:
- $900 due in twelve months: $75 a month
- $900 due in six months: $150 a month
- $900 due in two months: $450 a month
If the monthly figure is out of reach, do not give up on the fund. Save what you can, cover the gap the least expensive way you have, and start the full twelve-month cycle the month after the bill is paid. The first year is the hard one. From the second year on, every line is at its lowest monthly amount.
How to set it up
- List last year’s one-off bills. Go through twelve months of statements and mark everything that was not monthly. Annual charges hide well, so a subscription audit helps find the renewals.
- Write the amount and the month next to each one. An estimate is fine.
- Divide each by the months left and add the results. That total is your monthly transfer.
- Move it on payday to a savings account separate from daily spending and from the emergency fund. One account and a short list of what belongs to each fund is enough.
- Pay the bill from the fund when it arrives, then start that line again the next month.
Keep the list short. Three to five lines are enough to start, and a list that is easy to keep is the one that survives until December.
Where LucasApp fits
The setup needs last year’s bills, and those are easy to forget. In LucasApp you record expenses with a photo of the receipt or a short line of text, so next year’s list is already written. Recurring payments keep the yearly and twice-a-year charges visible with their dates, which is the calendar the workers in Carlisle kept in their heads.
Sources and further reading
- Rutgers University Libraries, New Jersey Digital Newspaper Project: Christmas Savings Clubs in NJ Newspapers
- CFPB: Your Money, Your Goals toolkit (June 2020, PDF)
- Federal Reserve: Economic Well-Being of U.S. Households (2025 survey)
- Federal Reserve: Consumer Credit, G.19 release
Cover photo: Sasun Bughdaryan; inline photo: Towfiqu barbhuiya, both on Unsplash, used under the Unsplash License.
Sources checked on October 3, 2026. Amounts in this article are illustrative and rounded; insurance premiums, card rates and prices vary by person, lender and city. The card example assumes twelve equal monthly payments at a fixed rate and no new charges. This is not personalised financial advice.
Frequently asked questions
What is a sinking fund?
It is money you set aside a little at a time for a specific expense you already know is coming, such as car insurance, holiday gifts or back-to-school costs. You divide the amount by the months left until the bill and save that much each month, so the bill is paid from money that is already waiting.
How is a sinking fund different from an emergency fund?
An emergency fund is for things you cannot predict: a job loss, an urgent repair, a medical bill. A sinking fund is for things you can: you know roughly what they cost and when they arrive. The CFPB recommends keeping money for goals separate from the emergency fund so one does not drain the other.
How much should I put in a sinking fund each month?
Divide the expense by the number of months until it is due. A $900 holiday budget with twelve months to go is $75 a month. If only four months are left, the same $900 is $225 a month, which is why starting right after the bill is paid is the cheapest moment.
How many sinking funds should I have?
Start with the two or three expenses that hurt most when they arrive, usually insurance, the holidays and anything tied to the car or school. Three to five lines are enough to begin. A longer list turns into bookkeeping that is easy to abandon.
Where should I keep sinking fund money?
In a savings account that is separate from the account you spend from and from your emergency fund. One account with a simple list of how much belongs to each fund is enough; several sub-accounts work too if your bank offers them for free.