Both your sinking fund and emergency fund are safety nets but for different purposes. An emergency fund is for the money you set aside in a savings account for unexpected costs you may face when losing a job, boiler breaks, a medical necessity, or pet surgery.
Before setting up your sinking fund, you should have a good grasp of your household’s budget. Budgeting is an essential tool for understanding your income sources less fixed and discretionary expense categories.
You can open an FDIC-insured saving account for each type or have one large sinking fund named sub-accounts. Keep in mind that the sinking funds are separate from your emergency fund and savings accounts.
Whatever you decide to do, each sinking fund should be in an FDIC-insured savings account that is readily accessible. Then, for longer-term purchases, look for higher yields and minimize fees you may have to pay.