How are you supposed to budget those yearly expenses into your monthly budget? Monthly bills are easy to plan for and it’s awesome when you have your monthly expenses all organized into a smooth-running budget. You set up automatic deposits for your paycheck and automatic withdrawals for your bills. It runs seamlessly. You know what to expect.
But then the car registration is due. And the cat has to go to the vet for his yearly checkup. And your membership to Costco/Amazon/whatever goes through.
How do you work those irregular, non-monthly (but expected) payments into your budget?
First, get a general idea of what kind of expenses pop up in your finances in any given year. These are the things you know are coming, but only happen a few times a year. The best way to get a solid total number to work with is to look back through your transaction records on your bank or credit card statements. Make a note of the non-monthly, regular payments that you expect to happen every year. Sure, you can’t plan for everything, but knowing what you paid for school supplies last year can help you prepare to pay at least that much in the budget for this year.
Then, total up all those recurring expenses. Surprised at the total? Yeah, no wonder your budget gets out-of-whack throughout the year. How can you not be impacted by the cost of a new tire set?
The next step is to divide that yearly total by 12 (you see where I’m going with this, right?) and start putting that amount aside every month. Your bank probably has an easy way to set up a secondary savings account (or sub-account) that you can direct deposit into every time you receive a paycheck. The reason to set this into a separate account is so it doesn’t just get rolled into general bill paying. This extra bill paying account is not meant to take the hit for fluctuating monthly expenses. If you are tempted to dip into this extra bill pay account to cover your regular monthly bills, definitely look for why your monthly account is not enough to cover your regular bills and adjust accordingly.
Note: if you know you have a big yearly expense coming up in a few months, you may want to go ahead and break that amount into fewer, larger payments so it doesn’t hit so hard (while continuing to put away the 12-month total, ideally). Let’s say you know your car registration is $800 and is due in 4 months. Go ahead and put aside $200 a month ASAP, as well as the $50 a month you will need for next year’s payment.
Yes, it’s going to take time to build up that account to be able to pay everything out of it. But the stress over your budget will be so much better when these ‘unexpected expected’ payments are planned so they don’t throw you for such a loop.
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