Savings challenges have a common way of failing that has nothing to do with willpower. You are twelve weeks into a 52-week challenge, the car insurance renewal arrives, and the only money available is the challenge pot. The challenge did its job; the problem is that a known bill had nowhere else to come from.
Sinking funds fix that. They are small monthly amounts set aside for costs you know are coming, so that annual and seasonal bills are already covered when they land. This guide lists the UK costs worth a fund, shows how to size each one with worked examples, and explains how to fit sinking funds and a challenge into the same payday in 2027. For the basics, see our guide to how sinking funds work.
Sinking fund or challenge pot: what goes where
The two do different jobs, and keeping them apart is what makes both work.
- Sinking funds are for costs you know about in advance: the date may be fixed (the TV licence renewal) or roughly known (Christmas, a birthday, the car service). The money is meant to be spent.
- A savings challenge builds a pot you keep, or one with a goal of its own, such as an emergency fund or a deposit.
- An emergency fund is for things you cannot predict, such as losing income or an urgent repair. Our emergency fund guide explains how much to aim for.
UK sinking fund categories to plan for
Go through the last 12 months of bank statements and note every cost that is not monthly. These are the ones that catch most UK households out:
- TV licence: a colour licence costs £180 a year, or £60.50 for black and white (gov.uk, checked October 2026). You only need one if you watch or record live TV or use BBC iPlayer.
- MOT: the maximum fee is £54.85 for a car and £29.65 for a standard motorcycle (gov.uk). Garages can charge less, but repairs to pass are extra.
- Car insurance and servicing: if you pay insurance annually, the renewal is usually the biggest car cost of the year. Add servicing, tyres and breakdown cover.
- Christmas: presents, food, travel and the extra socialising in December.
- Birthdays and celebrations: family birthdays, children's parties, weddings and the cards and travel that go with them.
- Holidays: including the costs before you go, such as passports, travel insurance and airport parking.
- Annual subscriptions: anything billed yearly, such as delivery memberships, software, a gym paid up front or professional fees.
- Pet costs: booster vaccinations, flea and worm treatment, the insurance excess and kennel or pet-sitting costs while you are away.
- Home: the boiler service, home insurance if paid annually and small repairs. Homeowners should read why every homeowner needs a maintenance fund.
- School: uniform, shoes, trips and the summer holiday childcare gap.
How to size each fund
The formula is the annual cost divided by the number of months until it is due. If the bill is a year away, divide by 12. Rounding each amount up to the next penny leaves a small buffer.
Here is a worked example. The TV licence and MOT are the official figures above; the rest are example costs, so replace them with your own from last year's statements or renewal quotes.
| Fund | Yearly cost | Per month (÷ 12) |
|---|---|---|
| TV licence (colour) | £180 | £15.00 |
| MOT (car, maximum fee) | £54.85 | £4.58 |
| Car insurance | £600 | £50.00 |
| Christmas | £600 | £50.00 |
| Birthdays (8 at £25) | £200 | £16.67 |
| Holiday | £1,200 | £100.00 |
| Annual subscriptions | £95 | £7.92 |
| Pet costs | £240 | £20.00 |
| Total | £3,169.85 | £264.17 |
Twelve payments of £264.17 come to £3,170.04, which is 19p more than the bills because of the rounding. That spare 19p is fine to leave in the pot.
If a bill is due sooner
Most people do not start sinking funds a full year before every bill. If a cost is closer, divide by the months you actually have, then drop to the normal twelfth once it has been paid.
- Christmas 2027, starting in November 2026: £600 over 14 monthly payments (November 2026 to December 2027) is £42.86 a month.
- Christmas 2027, starting in January: 12 payments of £50.
- Christmas 2027, starting in February: 11 payments of £54.55.
- TV licence due in April 2027, starting in November 2026: six payments (November to April) of £30, then £15 a month for the following year.
Fitting both into one payday
Order matters. On payday, pay essential bills first, then the sinking funds, then the challenge. That way the challenge is what flexes in a tight month, not the money for a bill you already know about.
Add up what both will cost before you commit. Using the example above, the sinking funds need £264.17 a month. The classic 52-week challenge averages £114.83 a month (£1,378 over 12 months), so together they come to about £379 a month. If that does not fit, shrink the challenge rather than the funds. Our budget planner shows how much room you have after essentials.
Watch where the big months clash
An average hides the timing. Starting the 52-week challenge on Monday 4 January 2027 and saving each week's amount in the month that week begins, November 2027 costs £230 and December £202, at the same time as the Christmas fund pays out. Two simple fixes:
- Run the challenge in reverse. Start at £52 and count down. With the same start date, November needs £35 and December £10. January to March are the heavy months instead, which suits people whose biggest annual bills land later in the year.
- Point the challenge at a fund. The 1p challenge started on 1 January 2027 reaches £642.61 by 24 December (day 358). Used as the Christmas fund, it replaces the £50 a month in the table above.
- Use a smaller envelope challenge for the holiday. Fifty envelopes from £1 to £50, one a week, save £1,275 in 50 weeks, which is close to the £1,200 holiday fund in the example. Our guide to the 100 envelope challenge on a tight budget has the start dates.
Keeping the money apart
Keep sinking funds and the challenge pot in different places, or at least in different named pots. If they share an account, the challenge total looks bigger than it is and it becomes easy to spend bill money by mistake.
Many UK banks let you create named pots inside your account, and an easy access savings account works for anything you want to earn interest on. Compare rates with the savings rates tool. SYM, our app, keeps each challenge and goal as its own target, so you can see at a glance which money is for keeping and which is already spoken for.
When a fund runs short or has money left
Bills rarely match your estimate exactly. If a fund falls short, cover the difference from that month's budget if you can, and raise next year's monthly amount. Avoid taking it from the challenge pot; if you have to, treat it as a missed week and add it back at the end rather than quitting. If a fund has money left, roll it forward to lower next year's amount or move it to a fund that is running low. For more ideas on what to include, see our list of sinking fund categories.
Frequently asked questions
What is a sinking fund?
How do I work out how much to put in each sinking fund?
Should I do sinking funds or a savings challenge first?
Can a savings challenge be a sinking fund?
How much is the TV licence in 2026?
- sinking-funds
- saving-challenge
- budgeting
- 2027
- annual-bills