A sinking fund is a financial strategy used by organizations to set aside money over time for a specific purpose, such as repaying debt or replacing an asset. By regularly contributing to this fund, the organization ensures that it has enough resources available when the time comes to make a large payment or investment. Typically, sinking funds are used by corporations and governments to manage long-term liabilities. For example, a company might create a sinking fund to pay off a bond, allowing it to gradually accumulate the necessary funds instead of facing a large payment all at once. This approach helps maintain financial stability and reduces the risk of default.