Make sinking funds work for you – no matter how you’re paid

Photo by Jeff Belmonte

Many of you have written me with this question – how do you budget for annual expenses when you don’t have a regular income, or when you don’t get paid monthly?

Budgeting might seem a bit easier for us because my husband gets paid monthly – one paycheck to one monthly budget. But it’s not really that much different than if we were paid bi-monthly or weekly, even though most bills are due once a month.

Just like using a sinking fund account to set aside money for those irregular, annual expenses, you can create accounts to build up funds for your monthly bills.

One of the main reasons I use Capital One 360 as our main bank is because it is incredibly easy to set up as many savings accounts as we need. All tied to one main checking account, we have a myriad of savings accounts set aside for all sorts of expenses. Capital One 360 allows you to name each account whatever you want, and you can transfer money between the accounts instantaneously.

If you pay your mortgage each month, but you get paid bi-monthly, simply set aside half of your mortgage each paycheck into a sinking fund labeled “mortgage.” If you pay your auto insurance every three months, and you get paid every week, determine the number of weeks in three months – 12, usually. Each paycheck, transfer your insurance premium total, divided by 12, into a sinking fund labeled “auto insurance.”

How It Works For Us

When our paycheck comes to our checking account via direct deposit, we immediately allot our designated funds to their appropriate savings account – and quite often, we use the handy automatic transfer feature to handle our regular sinking expenses. Right now, we have four accounts, and they all serve a specific purpose. Here’s what they look like at Capital One 360:

1. Holidays and Gifts

Each year, we decide how much we will spend on Christmas, and we simply divide that total by 12 – that’s the amount we automatically transfer each month to our Christmas account. Very simple.

We then decide how much we will spend on birthdays, Mother’s and Father’s Day, our anniversary, and holidays like Thanksgiving and Independence Day. We don’t predict every penny – we just pencil out estimated expenses and round to the nearest dollar. We total that up, and divide by 12.

And finally, we guesstimate how many babies and weddings will cross our relational paths that year, and tack on about $15-$20 per event – and then divide that total by 12. The sum of all those monthly numbers become our regular, automatic transfer into our holidays and gifts account.

2. Giving

We give ten percent of our income to our local church (our tithe), and because we have a set salary, we automatically withdraw the same amount in cash at the beginning of each month.

But each year, we also decide how much we’ll give above this amount, both to planned charities and to unexpected burdens to give (we like to give a big tip to a waitress each Christmas, and sometimes we want to donate to a great cause with an urgent need). This is an amount we pray over, so it’s more of a spiritual issue than a math one for us. We take this total, divide by 12, and have this amount transferred to our giving account each month.

My daughter playing near my feet at a nearby beach.

3. Vacation

Our vacation fund is pretty laughable, but because we live overseas, we want to take advantage of our locale while we’re here – even if it means just a few day trips here and there. But we can’t have those vacation weekends on a whim if we don’t have the funds set aside.

We decide on a set amount each year, divide by 12, and then have that amount automatically deducted into our vacation fund. We let this account build up gradually, and we use the amount in there determine how we spend it. So if we feel like checking out a nearby village that gets cool reviews in the travel guide, we’ll look at our account, and use that number to determine whether we stay for the night or just make it a day trip, whether we rent a car to get there, or whether we take our slower-but-cheaper public transportation system.

4. Work Expenses

My husband sometimes has work expenses that we need to pay for out of pocket until we get reimbursed. For this, we transfer a regular amount each month into our work expenses account, so that when he needs to pick up an unexpected printer cartridge for his office, it’s not cutting in to our family’s grocery budget. We’ll purchase the needed item using our checking account, and then that day, we transfer the spent amount from the work expenses account to our checking account – thus reimbursing ourselves, in a way. And when his company cuts him a reimbursement check, we put it into our work expenses account, ready for the next purchase.

5. Online Profits

spring cleaningMy Paypal account is tied directly to our online profits account – so when I get paid from an Etsy buyer, an advertiser, or when one of you buys my ebook (and thank you, by the way!), the funds go directly there. We don’t actually live on any of these profits – all online-earned money goes to our long-term financial plan a la Dave. For this reason, we like it to go directly to the online profits account first, instead of our everyday checking. We don’t want to accidentally use that money at the grocery store – but if we ever need to, we can instantly transfer money from this sinking fund into our checking account with no waiting.

6. Emergency Fund

And finally, our basic Emergency Fund is also housed in a simple savings account with Capital One 360. We don’t touch this unless there’s, well, an emergency. And because we make a zero-based budget each month, an emergency rarely happens. But when it does, we’re ready.

Photo by d70focus

Why I Like Internet Banking

There are a wide variety of online banks, but we ultimately chose Capital One 360 because most of the personal finance blogs I trust recommended Capital One 360. And we’ve been incredibly happy with them – their customer service is top notch, and their website interface is extremely easy to use. When you call, you get a real live person who’s not annoyed that you’re interrupting their solitaire game.

Making It Work For You

So for those of you who don’t get paid monthly – and even for those of you who don’t get paid the same amount each pay period – you can make sinking funds work for you. Instead of diving by 12, like we do, divide by the amount of paychecks you receive each year. So if you get paid every two weeks, divide your annual totals by 26. Then make your automatic transfers happen every two weeks.

If your income fluctuates, determine your annual expenses’ percentages. To make things easy, let’s say your annual Christmas budget is $500. If you get paid $400 one week, determine the percentage alloted to Christmas for that paycheck.

It might seem like a pain to allocate these funds with every single paycheck, but when you have a banking system that transfers money seamlessly and instantly, it only takes a few minutes. Those few minutes are certainly worth the peace of having your Christmas funds effortlessly ready for you come December. And when money allocation becomes one of your regular home management tasks, it just feels like part of your job as a steward of your family’s finances.

How do you set aside funds for irregular expenses? Do you prefer digital tools or pen and paper?

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  1. Stephanie

    I use ING as well, the only thing I don’t like about them is how long it takes to transfer money from them to our brick and mortar account. I would like it more if it took 24 hours or less.

    Stephanie´s last blog post…Don’t Even Think About It

  2. Tabitha - From Single to Married

    Great post! My husband is a CPA so it helps that he’s great at budgeting (because I’m not). He has this huge spreadsheet that he uses where he sets aside a certain amount out of every pay check for various things – house expenses, pet budget, tithing (we pay 10% too), Christmas gifts, etc. It’s a bit complicated (for me at least) but it works really well. I think the key is to stick with it and input absolutely everything so that the totals are always correct.

  3. Nicole

    great post at a good time for us. it’s a great idea to sit down and try to estimate what those things will cost for the year. easier said than done for us, but definitely worth the effort. i hate the feeling of seeing a huge bill show up that we just weren’t ready for. we’ve always done this in our heads but not with a separate account. maybe this will be the kick in the pants that we need!

  4. Michele

    This is a great idea. I do the same thing only I have “accounts” within my checking account. In my checkbook I have separate entries for my bills. I learned how to do this from “America’s Cheapest Family” (I love this book)

    • Jennifer Tankersley

      I do this too. I have a page for each of my “funds” that I save money for: Auto expenses (maintenance/repair), clothing, home, his/her (our paltry allowance), holiday, gifts, vacation, medical/appointments, savings. These funds really came in handy when we were unemployed for 5 months as well.


  5. Sharon

    I enjoy all your helpful tips and thank you for taking the time to share with us bloggers!

  6. The Weakonomist

    I agree, I’ve been an ING customer since 2004. Currently I use 2 ING accounts but I plan to double this by the end of the year as I get married and have a host of new expenses. Great post on money! I always love these.

    The Weakonomist´s last blog post…ANNOUNCEMENT

  7. Archer

    This post had helpful ideas for handling irregular or infrequent expenses by using savings accounts. I often refer to these as my own personal escrow account, just like the one your mortgage company would use to pay your taxes and home insurance. I use Quicken savings goals to accomplish the same level of tracking, allowing me to keep all the money in one account if I want.

    However, I did not think this post was that helpful in addressing its intended issue: that of irregular income. Regular income of a different frequency is easy, especially if it is more frequent than once per month. But how do you budget and handle income that is irregular in frequency and amount – say for consulting work or blog advertising revenue. That is the tricky issue and I would love to hear more ideas about how to address it. Do you establish a savings account buffer and try to pay yourself regular income out of that? What else could you do?

  8. Neal Frankle

    This is a good alternative – I think it depends on the person.

    I like a little approach. First, figure out what your total average expense is – including the non-recurring stuff like taxes, car repairs, travel, gifts etc. Compute an average.

    Then, make sure you deposit that amount into your checking account each month. Step three is to save the rest. This is simple and only requires one account.

    It requires discipline – like anything else but I’ve found that the simpler and easier, the more likely that I’ll actually implement.

    Neal Frankle´s last blog post…Loans To Family Lead To Stress – Unless You Do This

  9. Taylor at Household Management 101

    I love your explanation. I use a similar method, because when I get paid I automatically have set up with the bank a transfer of a certain amount into our savings account. That way it goes out of my checking account immediately so I do not even feel like it was there to spend.

    The amount transferred is calculated to be an equal installment payment, if you will, of irregular but planned expenses, such as insurance payments which we make once a year, school tuition, etc. It also includes an amount for savings and emergency fund. I do not put it all in different savings accounts, but I have it divided in my mind and on a spread sheet into different categories.

    Taylor at Household Management 101´s last blog post…Feb 27, Does A Messy House Make It Harder For Your Kids To Learn To Read?

  10. Tara

    I do a very similar system and I love ING.

    The Federal Reserve limits saving account withdrawals to 6 per month. The original way I had ING set up, I transferred my sinking funds out of a savings account. So now, I just use one withdrawal into my checking account, and transfer to the sinking funds from there.

    I received a letter from ING warning me of this limitation and not to do it again. 😉

    Tara´s last blog post…Native Pride

  11. Liz

    Thanks for this info. I was looking for a place to put some money we recently came into that isn’t attached to our checking account. I think this may be the best solution.

    Liz´s last blog post…It’s been a while

  12. Keri @ Bread of Angels

    I am most naturally a pen and paper person, but lately I’ve been working on being more of a digital person. I just opened ING accounts at your recommendation and love it! Love that I can make as many as I want with my own names, and love that it’s out of our regular checking/savings, but I can transfer it back quickly if needed.

    Keri @ Bread of Angels´s last blog post…Living in the Present

  13. Freedom

    Wow- this is sooooo awesome, and seems so easy. I am going to try it.
    Thank you!

    Freedom´s last blog post…NEW address…

  14. Trixie


    Thanks for the very well written post. You’ve shared lots of great ideas. Only one piece of our income is regular so we use a sinking fund of sorts too — like one commenter wrote; it’s kind of like an escrow account.

    Take Care,


    Trixie´s last blog post…My Old Fashioned Life: The Grease Can

  15. Stacey

    I disagree with the statement that this doesn’t address irregular income. I think this is an excellent way to allocate for expenses when you have an irregular income. DH is on commission & this would allow me to easily set aside yearly big expenses (like property taxes, Christmas Gifts) as well as the regular budget items. When you have an irregular income it’s really important to have 3-6 months’ worth of expenses set aside, this would allow you to do that and make sure the important expenses are funded.
    Thank you!

  16. Ashley P

    I am a big fan of Quicken… I am able to set up as many accounts as I need in it to keep track of all my spending and saving – it itemizes each transaction I make, helping me to have an accurate picture of where my money is going, and I can allocate certain funds within my checking account to be for certain things. I.e. I have a “House Fund” (saving for a down payment) and a “Savings” account (for “emergencies”, gift giving, car repairs, and other irregular expenses that might come up). I am then able to leave all the money in my checking account (which earns 4-6% interest, depending on the going CD rate) and I don’t have to have multiple accounts at a bank. It helps me to have an “allotted spending maximum” each month for my “regular budgeted items” and then any income above and beyond that number is broken up between my two “accounts” on Quicken at a 20/80 ratio (the majority going towards the house down payment, as long as the other account is above our minimum savings “requirement” for emergency purposes).

    Ashley P´s last blog post…a MUST read!!!

  17. Jenni at My Web of Life

    This post is really timely for me. My husband and I are both running a business from home. He does consulting work so we get large chunks of money sporadically throughout the year. I have really struggled with our budget because it isn’t like there is a set salary to base it from. So I have a hard time telling if I am budgeting too much or too little.

    We also bank through ING and I have never thought of breaking it up to that level of detail.

    Thank you for some fantastic information! I’m going to go back and look at it all in more detail now.

    Jenni at My Web of Life´s last blog post…Saving Gas Quiz

  18. Jolene

    This is a great post. It makes budgeting seem simpler and with less stress involved. I have an ING account, but only for savings. Thanks for sharing.

    Jolene´s last blog post…It Doesn’t Hurt to Try…

  19. Sherri (Serene Journey)

    We set aside money with each paycheck into a “virtual debt” account. This account is for all those payments that come up throughout the year (house insurance, gifts, car repairs etc.). We always have enough money in that account when the big bills come in and it’s all automated so we don’t even have to think about it.

    Everything is kept digitally in one massive spreadsheet, with many tabs. Having it digitally makes it really easy to tweak if need be and you can also generate graphs and trends etc… if you’re into that sort of thing…which my husband is… 🙂

  20. Wendi

    We love ING here! I think we currently have about 5 or 6 different accounts there (vacation, auto savings, misc, emergency, and fun). My husband gets paid once a month also and I have set up automatic withdrawals for early in the month – the budgeted amounts come out of our checking and go into the appropriate savings acct without any extra thought on my part – so easy! I especially love having the money available when the bills come in.

    Wendi´s last blog post…He Calls Them Like He Sees Them

  21. Kelli

    Great idea! I love the idea of breaking down your savings into different accounts. We have it all in one and just have to keep mental note of everything on our own.

  22. Jena

    We really love e*Trade for internet banking. While they do not have ATMs or an actual physical location, they reimburse you for all the fees charged by other bank’s ATMs.

    Jena´s last blog post…Weekly Steals: All Donald J Pliner Shoes – $29.99

  23. Clara S.

    I love this idea and can’t wait to share it with my husband. We currently do like others mentioned and have everything broken up on paper and then deposited into the same account. The problem is we (okay often it is I) like to “rob Peter to pay Paul” so to speak. We can “borrow” from our Christmas money for vacation and then repay it with overtime money or extra income; which isn’t really staying on a budget even though the cash is there and we’re not borrowing on credit. Having separate accounts makes this much more difficult to do. Thanks for sharing.

  24. Karen

    That looks just like our ING account. We get paid twice monthly and, as you said, it really makes little difference. Just a different number to divide by!
    We started with our emergency fund there and as we got our financial house in order we were able to add in our sinking funds. We keep very little in our local bank as ING works for nearly everything and is so easy to use!

  25. Lucie @ Unconventional Origins

    This is so insanely helpful, there are no words. We have been trying to set up a budget for awhile, and we do okay, but we get paid very irregularly (think quarterly) and are both transitioning into new careers. It is so hard to budget, and some of the stuff you suggest here sounds great. I am about to email the link to this to Stacy!

    Lucie @ Unconventional Origins´s last blog post…Hoping babies get AIDS (or, how NOT to win back voters)

  26. Becky

    My husband gets paid biweekly, so we have a separate checking account set up for just bills. We have a set amount (all the monthly bills, divided by two, plus the annual bills, divided by 12) that we pull from each pay check, and transfer into the other checking account. Then for his two “extra” paychecks a year, we have that same amount we can save without even feeling it.

  27. Sharon

    I use First Internet Bank of Indiana (First IB) which was highly recommended as an online bank back when I did the research in 2003. I haven’t had a bricks-and-mortar bank since; paper checks are mailed in postage paid envelopes.

    I don’t think they let you easily open multiple accounts, though. I just have one account, make a regular deposit into it (the totals of all of those lines on my Google docs budget spreadsheet), and only withdraw for the categories I’ve set aside.

    • Sharon

      Btw, First IB also lets you effortlessly set up mini-accounts. What a great system!!

  28. Amy @ Living Locurto

    I love ING and have been using it for a while now. I like how you have different accounts for each category! Great idea. I’ll have to try that.

    Amy @ Living Locurto´s last blog post…I Heart Faces – Week 8

  29. Rachel Porter

    There is a lot of great info. and good feedback here. I would just add to the encouragement to say, definitely set aside for non-monthly expenses. Otherwise, once they come due, they can be BIG budget busters. Not planning for non-monthly expenses can throw you off to the point (if you’re not careful) of stopping or discontinuing your budget because of discouragement and uncertainty. Keep on keepin’ on ladies.

    And to address irregular income, both my husband and I are self-employed, so we’ve dealt with this issue a lot. What we’ve found best (and what I recommend to my clients) is to draft an Irregular Income Planning Sheet, along with your monthly totals that you want to spend on aka the “Monthly Cash Flow Plan” should be a regular part of your budgeting routine. It lays out exactly how much money you need to bring home each month to survive and prosper.

    On this form, simply look at the individual items from your “Monthly Cash Flow Plan” and prioritize them by importance. Ask yourself, “If I only have enough money to pay for one thing, what would that be?” Place that at the top of your list. Then ask, “If I only have enough money to pay for one more thing, what would that be?” That goes second on your list. Keep using this method for all the items on your cash flow plan.

    Now, you are ready to allocate your paycheck. If you get a $1,000 paycheck, you will spend that $1,000 down the list until it is gone, recording the cumulative amount spent in the “Cumulative Amount” column. When the money runs out, you are finished spending. This is why the most important items are on the top of the list.

    Be prepared to firmly stand your ground. Things can have a way of seeming important when they are only urgent. For example, an opportunity to go on a less expensive vacation because your being offered off-season prices may seem important, but in reality, it’s only urgent (meaning time sensitive.) Urgency alone should not move an item to the top of the list.

    Sorry for the lengthy reply. Hope you found it helpful.

    Rachel Porter´s last blog post…A Visit to Nashville for Some Small Business Training

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