Sinking Funds: How to Avoid Holiday Debt Next Year

January 5, 2022

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Christmas is a time for fun, family, and giving. Unfortunately for some, the spending associated with this joyous time of year was bought on credit.

According to Magnify Money, this past season Americans with holiday debt added $1,381 of debt on average. Unfortunately for some, the pay off may not be until the next Christmas or even longer.

If we’re still paying off debt from last year’s Christmas, how can we enjoy this year’s Christmas?!

There’s a solution to this holiday debt conundrum and it’s called the Sinking Fund.

The best time to start one is NOW …

What is a Sinking Fund?

A sinking fund is an easy way to save up for the larger expenses in your life. Each month, you save up a fraction of the costs associated with an upcoming big event like Christmas. When that day comes, you’ll have the money available to pay for it without taking on debt.

How Does the Process Work?

Since we’re talking about the holidays, let’s use that occasion as an example.

This past December, the Jones family spent around $1,500 on Christmas expenses. Let’s assume it’s January and they have 12 months to save up for next Christmas. Each month for the next 12 months, they will need to save $125. This diligent saving process will keep the Joneses out of holiday credit card debt next December.

If they start to save in June instead of January, then they only have 6 months to save. The Joneses will have to adjust accordingly. If their budget only allows them to save up $1,000 by next December, then they’ll have to cut back on their spending.  

What if I have no idea what we spent last Christmas?

Well, now is the best time to learn.

Go back through your receipts, credit card or bank statements and try to get an understanding of where your spending ended up. It doesn’t have to be to the penny, but an educated and researched estimate is a lot better than a wild guess.

This is also a great time to commit to a monthly budget. If you’re going into debt every holiday, it is more than likely because you’re not tracking your spending.

Christmas Pictures - Jones Family

What are some budgeting options that will help me with my holiday Sinking Fund?

Oh, I’m glad you asked. 

1. Mint

Mint has been our go-to budgeting app for almost 10 years. It syncs all of your accounts into one convenient place, has a handy app you can use to check on your progress throughout the month and it’s free.

For your holiday Sinking Fund, you can set a specific month in the system that tracks your necessary savings. It automates the process for you.

If you’re interested, here’s a 10-step guide to signing up for Mint.

2. YNAB (You Need a Budget)

This is the advanced budgeter’s dream. Not only does it aggregate all of your information into one convenient spot, but it helps you adjust easily when you go over budget in certain categories. That was my favorite feature when I tried it out. So if you do spend slightly more than $1,500 on Christmas, you can just ratchet down another area of your budget to compensate.

They have a free trial so you can give it a whirl.

3. Tiller

If you prefer seeing your dollars in a spreadsheet, this is the one for you. With Tiller, you have the ability to modify your data how you see fit. It also syncs your accounts so you can easily see how your spending shook out that month.

4. Zeta

Looking for a budgeting app that caters to couples? Zeta has you covered.

Zeta allows you to track all of your accounts, whether they are personal or shared. You can track spending, set financial goals, and budget together.

Related Article: My Spouse Doesn't Want to Talk About Money. What do I do?

Where do I keep my Sinking Fund savings?

That’s up to you and your spending habits. If you keep these Sinking Fund dollars in your regular checking account, are you going to spend it? If so, put it in a completely separate savings account that you won’t touch.

After paying off our mortgage, we’re saving up for our first rental property and those funds are in a completely separate bank account. We don’t wanna touch 'em!

For all of our other sinking funds, we keep them in our checking account.

What are other Sinking Fund examples?

Auto Insurance

This is another expense that pops up annually or semi-annually for most people.

The Joneses have two cars and they pay $1,200 in Auto Insurance every 6 months. To ensure they’re not caught off guard, they should save $200 each month in their Sinking Fund.

Life Insurance

Term Life Insurance is an excellent way to protect your family. The Joneses agree.

The Joneses got a low-cost policy last year through Quotacy and their annual payment is $800. That payment is due in the same month for the next 30 years. This is a perfect candidate for a Sinking Fund.


It’s fun to celebrate our kids on their birthdays, but we shouldn’t go into debt to do it.

Mr. & Mrs Jones want to throw a 16th birthday party for their daughter and expect to spend $600. If they have a year to go, they need to start stocking away $50 per month.

Birthday Party - Jones Family

You get the idea …

Other Examples

  • Wedding gifts
  • Vacations
  • Oil Changes
  • Non-Monthly Household Bills (Water, Garbage Pickup, etc)
  • Property Taxes (if they aren’t paid through escrow)

Put the Joy Back in the Holidays

When we’re strapped for cash during the holidays and putting everything on a credit card, we’re not able to experience the true joy of Christmas … Giving.

The instinct to close our hands instead of opening them is understandable especially if we’re in debt. If we save up for our larger spending events in advance, we’re able to become happier givers.

I’m not just talking about giving to your kids or your family, but to those people who are truly in need. These are people without a home, our neighbors who are hungry and kids without a safe place to sleep. If we were all able to make a difference in their lives by planning our holiday charitable giving in advance with a Sinking Fund, what a wonderful world this would be.

Is it a lofty proclamation to say “Save your money and you’ll save the world”?

It can’t hurt to try.

See you in December, my friends!

How does holiday spending affect you?

Please let us know in the comments below.

Andy Hill

Andy Hill, AFC® is the award-winning family finance coach behind Marriage Kids and Money - a platform dedicated to helping families build wealth and happiness. With millions of podcast downloads and video views, Andy’s message of family financial empowerment has resonated with listeners, readers and viewers across the world. When he's not "talking money", Andy enjoys being a Soccer Dad, singing karaoke with his wife and relaxing on his hammock.


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