Annual and Irregular Bills: The Sinking Fund Method

Monthly bills are easy to plan for because they come every month. The bills that break budgets are the ones that come once or twice a year: car registration, a six-month insurance premium, an annual membership. They’re predictable, but because they’re rare, they feel like a surprise every time. A sinking fund turns them into small monthly amounts.

Step 1: List every non-monthly bill

Go through a full year of bank and card statements, plus your email and mail, and list every bill that doesn’t come monthly. Common ones:

• car registration and inspection
• car insurance, if paid every six or twelve months
• renters or homeowners insurance paid yearly
• property taxes, if not paid through your mortgage
• annual subscriptions and memberships
• warehouse club or roadside assistance memberships
• regular car maintenance like oil changes and tires
• holidays and birthdays, if you want to plan for them too

For each one, note the amount and the month it’s due. The CFPB’s Your Money, Your Goals toolkit includes a spending tracker that helps you catch these.

Step 2: Divide by 12

Add up the yearly cost of everything on the list, then divide by 12. That’s your monthly sinking-fund amount.

A worked example, with made-up amounts:

Bill	Yearly cost	Due
Car insurance (two $540 premiums)	$1,080	March, September
Car registration	$120	June
Renters insurance	$180	August
Annual memberships	$150	November
Car maintenance	$480	Through the year
Total	$2,010
Monthly amount (÷ 12)	$167.50

Saving $167.50 a month covers every one of these bills.

Step 3: Save it automatically

1. Open a separate savings account for your sinking fund, or a separate savings “bucket” if your bank offers them.
2. Set an automatic transfer for the day after payday.
3. Pay each bill from the fund when it comes due.

At an FDIC-insured bank, the FDIC says deposit insurance covers $250,000 per depositor, per insured bank, for each account ownership category, and savings accounts are covered.

What if a bill comes before the fund is ready?

In the first year, a bill may come due before you’ve saved enough for it. Two fixes:

• Front-load the earliest bills. Save extra for whatever’s due soonest, then settle into the monthly amount.
• Start with what’s coming next. Build the fund bill by bill, in due-date order, instead of all at once.

Our guide to emergency funds explains why it’s worth keeping the two pots apart, even when it’s tempting to borrow from one for the other.

How the fund looks across a year

Using the example above, $167.50 goes in every month. The balance grows through the quiet months and drops when a bill is paid. Here are some of the months in a year:

Month	In	Out	Bill
January	$167.50	$40	Oil change
March	$167.50	$540	Car insurance
June	$167.50	$120	Registration
August	$167.50	$180	Renters insurance
September	$167.50	$540	Car insurance
November	$167.50	$150	Memberships

If the fund is ever short, save a little extra for the next few months and it catches up.

Put due dates on a calendar

The sinking fund handles the money. You still need to know when each bill is due, especially ones you pay by hand. Put every due date on a bill calendar; the CFPB’s toolkit includes one. Add a reminder a couple of weeks ahead for the big ones, so you have time to compare prices before an insurance renewal.

If you use autopay for yearly bills, make sure the money moves from your sinking fund to checking before the charge. The CFPB warns that if your balance is too low when an automatic payment is due, both the bank and the company might charge a fee.

Review once a year

Prices change. Each year, update the list with this year’s amounts, add anything new, and recalculate your monthly figure. Our bills spreadsheet template has a set-aside column that does the math for you.

Keep yearly bills on the same list as monthly ones

The bills that surprise people are the ones that live outside their usual list. A bill tracker like Billo handles bills that repeat every week, month or year, and reminds you 3 days before each one is due, so a once-a-year bill gets the same warning as your rent.

Summary

• List every non-monthly bill with its amount and due month.
• Add them up and divide by 12.
• Save that amount automatically into a separate account.
• Put every due date on a calendar and review the list yearly.