The holiday shopping season happens every year. So why can it still be so tough to be financially prepared? Thirty-one percent of 2024 holiday shoppers who used credit cards to buy gifts still hadn’t paid off the balances nearly one year later, according to NerdWallet’s 2025 Holiday Spending Report.
One reason behind the budgeting-spending disconnect could be the assumption that planning ahead looks the same for all expenses. It doesn’t. For large, predictable expenses, like holiday expenses, one solution is a sinking fund — money saved and earmarked for specific purchases.
The three types of expenses
Thinking about how frequent and predictable an expense is can help you decide how to plan for it.
1. Groceries, rent and other recurring expenses are both frequent and predictable. Typically, you’d pay for these with your regular income using your checking account (or with a credit card that you pay off each month). These expenses make up most of your budget, and are relatively easy to account for.
2. Emergencies are chaos agents. They’re infrequent and unpredictable: a trip to the emergency room or storm damage to your home, for example. It wouldn’t make sense to budget specific amounts for different potential emergencies. Instead, you prepare for these by building an emergency fund — a single sum dedicated for these surprise expenses. There’s no single amount everyone needs. Three to six months of your typical spending is ideal, but even a few hundred dollars can make a difference.
3. Finally, there are the expenses that can wreck your budgeting process. They are generally more predictable than emergencies but less so than recurring spending, and they don’t occur often. Examples include:
Replacing a roof, a furnace or another major component of a home.Buying a new vehicle when your current vehicle no longer works for you.Going on vacation.
Because the actual purchase may be many months or years away, it’s easy for these expenses to sneak up on you. But taking advantage of this time is crucial as they tend to be costly.
Missing your window to save for big-ticket purchases is a common oversight. Thirty-five percent of Americans say their 2025 holiday spending was financially irresponsible (e.g., they took on debt or overspent), according to a NerdWallet survey conducted online by The Harris Poll in January 2026.
Sinking funds are the centerpiece of one savings strategy that can counteract this problem.
How sinking funds work
A sinking fund is another name for money you save a little bit at a time for a specific purchase in the future.
Instead of thinking of these expenses as large one-time purchases, translate them into a monthly expense — a money cadence most people are more accustomed to. Breaking it into smaller chunks also minimizes the intimidation that may come with focusing on a large dollar amount, transforming it into something more manageable.
To stay organized, keep your sinking fund in an account separate from your primary checking account. If you’ll have multiple sinking funds, look for a savings account that lets you create subaccounts, or “buckets,” to organize funds for each goal. Choosing a high yield savings account is a smart way to put your savings to work.
Sinking funds in action
Here’s what using a sinking fund might look like: Say you replace your vehicle about every eight years, and you want to spend $20,000 on your next car. If you save $200 per month for eight years into a sinking fund, you’ll have that amount ready to go when you need it. If you take out a loan instead, you’ll pay more due to fees and interest.
For holiday expenses, start with what you spent last year and divide it by the time you have to save. If you spent $1,500 and start saving for next year in February, you’ll need to save $136 each month for 11 months to reach that savings goal.
Starting a sinking fund has an added benefit: The planning process can alert you to potential overspending before it happens. If you discover your monthly budget can’t accommodate contributions to a sinking fund, you certainly won’t be able to afford the purchase later without using debt.
Delaying, downsizing or rethinking future purchases well ahead of time allows you to make financial decisions with confidence. If you discover you lack the savings when you’re already in the checkout line, your emotions may overwhelm you to spend money you don’t have.
The complete survey methodology is available in the original article, published at NerdWallet.
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Kurt Woock writes for NerdWallet. Email: kwoock@nerdwallet.com.
The article Big Expenses Ruining Your Budget? Try a Sinking Fund. originally appeared on NerdWallet.
