Emergency fund vs. sinking fund: What’s the difference?

An emergency fund and sinking fund may sound kind of similar, but they are actually very different tools both aimed at improving your financial security. Let’s look at the differences.

What is an emergency fund?

Good cash management means putting funds away for a rainy day in case you’re hit by a big cost that comes out of the blue—like an illness or a car breakdown.

This is where an emergency fund comes in. It delivers a financial safety net so you don’t have to get a loan if something untoward and unexpected happens to you or your family.

How much do I need?

There’s no strict rule here, but when it comes to an emergency fund, more is better. Even if you can only save a little at first, it’s a good idea to start, and to do it regularly.

For instance, if you put $40 a week into a savings account, you’ll have over $2,000 by the end of the calendar year, which will give you something to fall back on if a crisis hits.

Experts suggest that a good general target is to have enough money in your emergency fund to cover three months of expenses at a minimum.

How to save for an emergency fund

Sticking to making regular payments is often the hardest part when it comes to building an emergency fund.

When it comes to this part of the equation, some ideas to take the sting out of it include setting up a separate savings account, automating your savings, and maximising your offset account if you have a home loan.

How is a sinking fund different?

In business the term ‘sinking fund’ has a specific technical meaning, but when used in common parlance it refers to a strategic way to save money by regularly setting some aside.

A sinking fund is completely separate from your savings account or your emergency fund, and can be used to save up for things like home repairs, a holiday, or a new car.

Simply put, while your emergency fund should be reserved for something that comes at you unexpectedly, the idea of a sinking fund is to save for a specific and planned expense.

How to create a sinking fund

There are few simple steps here. First, dedicate a savings account to hold your sinking fund in, that you won’t access for other expenses. It can help to give the account a name in line with the expense or saving goal.


Next, you need to decide how much you’re going to store in your sinking fund as a starting point. This will likely depend on your individual financial circumstances and the goal you’re aiming at with the fund, such as whether it’s for a new car or a weekend getaway.

From there, you’ll need to decide how much you’ll put away in the sinking fund on a regular basis whether that’s weekly, monthly or quarterly.

How much should I have in a sinking fund?

Unlike with an emergency fund, the amount you need in a sinking fund account depends on the estimated cost of the expense. Once you’ve accumulated that amount, you’re able to spend it for the specified expense.

Another way to organise your sinking fund to guide your saving—if you want to get a bit fancier—is to split it into categories of expenses in line with your goals. You can deposit money for recurring expenses like taxes, subscriptions and insurance premiums, one-off purchases like a new computer or car, and then large events like anniversaries or birthdays.

Remember, the bottom line is that emergency funds and sinking funds are not mutually exclusive – both mechanisms are ways to take greater control over your finances and are ways to give you more financial freedom in the long term.

How to give better feedback: using the SBI model for success

When people disappoint us, instead of addressing issues head-on, we’re often quick to create stories in our heads. We make assumptions. And left unaddressed, assumptions can lead to misinterpretations and strained relationships.

Without taking the time to have challenging conversations, we’re unlikely to move forwards. Trouble is, as humans we tend to avoid conflict and never want to offend. That’s where the SBI feedback model — otherwise known as Situation-Behavior-Impact — can help.

But first, what is SBI?

Regardless of whether it’s at work, socially, or at home, giving feedback isn’t easy. It can cause anxiety for the person delivering feedback, and defensiveness for the person on the receiving end. The SBI structure assists people to have these conversations successfully. 

SBI helps the giver of feedback to focus on specific situations, actions and behaviours rather than the person or their attributes. This means feedback is objective, and because it’s not personal: there’s less chance of offending others. 

It’s something Catherine Bowyer, executive coach and human behaviour specialist, says can help take emotional reactions out of conversations. 

‘I find many managers don’t like delivering ‘negative’ feedback because they might upset the other person,’ she said. ‘SBI allows the feedback giver to be more objective. It’s less likely for the receiver to take feedback personally because they can separate what they did from who they are.’


How does it work? 

Putting the SBI model into practice is simple and easy. It operates in three steps. Firstly, clarify the situation. To do this, be specific about the situation in which the behaviour occurred. For example, it’s better to say, ‘during our conversation yesterday…’ rather than, ‘In previous conversations…’ Being specific helps to avoid confusion. 

Then, describe the behaviour observed. It’s important to describe observable behaviour, without including opinions or judgments. For example, saying, ‘you said something incorrect,’ is more objective than ‘you weren’t acting with integrity. 

To describe behaviour without opinions, Catherine recommends being as impartial as possible. She often asks clients, ‘if you were to video record your team member doing this behaviour, what would you see them doing on the recording?’ 

‘It helps them separate who the person is (or who they think they are) from what they are doing,’ she said. 

Finally, explain the impact the person’s behaviour had. Describing the result of the behaviour helps others see the practicalities of their actions. 

How can SBI improve behaviour? 

Before we jump to conclusions about why people act the way they do, it’s important to ask why. The extended SBII model includes an additional step  — intention. Asking others about their intent helps us avoid misconceptions. Clarifying intent also means understanding the other person’s perspective. 

Begin these conversations by asking what a person hoped to achieve or why they did what they did. Understanding others perspectives is useful when giving direction for improvement and it can spark the beginning of further coaching. 

To ensure that feedback is useful, Catherine also recommends discussing both actions and consequences. She recommends stating the actions you’d like the other person to take as a result of the feedback. Then discussing the consequences that will occur if the changes aren’t implemented. 

The result 

When we clearly articulate feedback using the SBI or SBII model, we’re less likely to cause offence. And tangible, practical feedback allows others to change their behaviour. 

‘The SBI structure helps the receiver have a better understanding of their behaviours, and what they can do to improve or change them.’

Regardless of the situation, giving feedback is never easy. But without discussing issues, we’re bound to wind up misinterpreting others’ intentions. SBI offers a safe structure to speak, understand, and listen — something we can all use from time to time.

The SBI feedback model — otherwise known as Situation-Behavior-Impact — is a useful framework for providing feedback respectfully and in a constructive way. And better yet, you can use it anywhere – at home, with your family, or at work.