What is the difference between a sinking fund and my emergency fund, and do I need both?

Yes, ideally both, because they solve different problems. Your emergency fund covers the unexpected and urgent, such as a job loss or a sudden medical bill, and you hope to never touch it. A sinking fund is money you deliberately save a little at a time toward a known, planned expense, like holiday gifts, annual insurance premiums, a future car, or a vacation. Keeping them separate protects your safety net: when the car registration comes due, you pull from the sinking fund instead of raiding the emergency reserve, so the emergency fund stays intact for true surprises. You can hold multiple small sinking funds in labeled savings sub-accounts. The mental separation is what makes the system work, even if the money sits at the same bank.