Welcome to Day 21 of Where’s My Money Going? Month! This February 2009, I’m challenging readers (and myself) to track spending manually for 28 days. Don’t worry if you’re late to the party, you’re still welcome to join. Consider tracking your spending into March.
One of the things that can throw off a budget the most is known but unplanned-for annual events. Every December, we have to pay our renter’s insurance. We get a couple reminders beforehand and an update, so by the time I prepare the December budget I should be well aware of the expense.
But even if I budget for it, that puts a strain on the budget itself…it has to accomodate $100 extra. If I took a little from each other flexible column, I might not have too hard a time finding that hundred. But what if it was more–for car insurance or if we owned a home?
Some people dip into their emergency funds for this, but it’s really not an emergency. So what is the best way to handle it?
We plan for this kind of thing every month.
Since we bank at ING Direct, we can easily create lots of small savings accounts. So we’ve got one for each annual expense. Every month, we have money transfer automatically from our checking account into each of those savings accounts, about 1/12 of the estimated cost.
That money also goes into the budget, say $7.50 for renter’s insurance. At the end of the year, we transfer it back into checking and pay the bill.
If your bank doesn’t let you do this kind of thing easily, you can also just move a certain amount into savings each month based on the total you’re saving up for (i.e. $7.50 for renter’s insurance, $30 for tire fund, etc). Budget it the same way and keep some sort of record (spreadsheet, document) of how much you’ve set aside for each expense. This isn’t as neat as having the money sorted into separate accounts, but if you’ve got it on paper (computer) that’s good enough!
Expenses to plan ahead for include: homeowner’s/renter’s insurance, car insurance, tire replacement/car maintenance, textbooks (if you’re a student)
So how do you budget for large, predictable expenses? Do you adjust your monthly budget or prepare ahead of time?
This post was part of Where’s My Money Going? Month.