Plan Your Savings Goals with Sinking Fund Calculator
A sinking fund is a savings strategy used to set aside a fixed amount of money regularly to meet a specific financial goal in the future. The term "sinking" refers to the fund gradually increasing as you contribute to it over time. Sinking funds are commonly used for repaying debt, purchasing large assets, or preparing for large expenses like home improvements or vacations.
The sinking fund formula helps you calculate how much you need to contribute regularly to reach your financial goal by a specific time. The formula is:
Contribution = Money to accumulate × (interest / ((interest + 1) ^ (compound frequency × period) - 1))
This formula considers the money you want to accumulate, the interest rate, the compounding frequency, and the time period. It gives you the amount you need to contribute regularly.
To calculate a sinking fund, you need to know:
Using these values, you can plug them into the sinking fund formula (provided above) or use the calculator at the top of this page to automatically calculate the required contribution.
Let's say you want to save $10,000 over the next 5 years to buy a new car. The annual interest rate is 5%, and interest is compounded quarterly. To calculate your required contribution, you can use the sinking fund formula or the calculator. In this case, you would need to contribute $1,746.27 annually, or $436.57 quarterly, to reach your goal of $10,000 by the end of 5 years.
A sinking fund is a smart financial strategy for planning for large expenses in the future without taking on debt. It allows you to spread out the cost of major purchases or debt repayments over time. Instead of taking out a loan or using credit cards, you can save a fixed amount regularly and benefit from interest growth (if applicable). It can also provide peace of mind, knowing you're prepared for future financial obligations.