Sinking fund is a fund or saving that has been set aside to be used for payment of a loan or expenditure. If you have a house mortgage that has an attached payment of $500 due every month it would be difficult to set aside $500 from your monthly income. You earn a monthly salary of $2500 and spending $500 on a mortgage is very difficult.
If you have a saving of $10,000 you can use this as a sinking fund to support your mortgage payment for next 16 years and 8 months ($10,000/500/12 months).
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