Saving Effectively for Life's Little Expenses

Undoubtedly, we have all been there at one time or another. You have been putting a little money in your retirement account, you are utilizing your health savings account, and you did not even owe any taxes but seemingly out of the blue those yearly expenses start to pop up. Home insurance, car insurance, vehicle registration renewal, annual income taxes, holiday gifts and now you are charging on your credit card or nabbing cash out of your emergency account. Its not that you did not know they were coming, but expenses that occur annually rather than monthly are easy to forget even if you are religious about your budget. Fortunately, there is an effective way to budget for these expenses and keep them from becoming an issue each year.

When you pay a bill monthly it is difficult to forget to budget for it, but when you pay annually its easy for these expenses to fly under the radar. The easiest way to keep these expenses out in front is to devise a system where you pay the bill monthly. By setting aside money each month for annual expenses you can ensure that when the due date comes around you will have the cash to make the payment without having to put it on your credit card or dip into your savings. One way to go about this is to set up a savings account for each large annual expense that you incur and divide the total amounts by twelve months. Each month, deposit the necessary funds into each account and when the bill comes due, pay it from the account and begin saving for next year. This way those large annual sums will be much easier to swallow. For instance, let’s say that you have a $300 life insurance premium due every October. If you set up a separate savings account (or checking account if you prefer) and deposit $25 a month into the account, by next October you’ll have the $300 sum and you will not have to dip into your other savings to pay the bill. There is no doubt that it is much easier to come up with $25 a month than $300 all at once and this way you will never be caught unprepared for an annual expense.

An easy way to set up multiple savings accounts for annual expenses is through an online bank such as ING Direct. Also, many traditional banks offer free checking accounts with no minimum balance and no maintenance fees that you can link to your current online banking. Contact your local bank and tell them what you are looking for and chances are they will be able to point you in the right direction.

A few examples of common annual expenses:

• Home Insurance Premiums
• Life Insurance Premiums
• Car Insurance Premiums
• Vehicle Taxes
• Property Taxes
• Annual Income Taxes
• Holiday, Birthday, and Anniversary Gifts
• Vehicle Maintenance

While none of these expenses are life-altering, they can catch up to you and its best to budget for them now rather than later.

Source

http://www.kiplinger.com/printstory.php?pid=16267

http://qvisory.org/posts/dealing-with-annual-expenses