Since many of us tend to live paycheck to paycheck, what happens when those yearly expenses like property taxes come due? Are you stressed, worried, and panicked about how you are going to pay for that bill? Do these expenses tend to take you by surprise? If so, there are 9 easy steps to change this so you can plan and start getting ahead of these bills, having the money already set aside a year in advance. If you’re skeptical because you are currently living paycheck to paycheck, please keep reading to see how you can start making the change to take control of your finances.
Steps to Follow:
- List out every single yearly or quarterly bill that you have, including the month that it is due and total amount. Don’t forget about the online, membership subscriptions.
- Sort these bills in order of month due. (i.e. List all the bills that are due in January, then February, March, etc.)
- For quarterly expenses, such as pest control services, multiply that number by 4 and put that number in the total amount column.
- Calculate the Total Yearly Expenses to be Budgeted.
- Take the total yearly expenses and divide by 12. This is your Average Total Expenses to be Budgeted per Month.
- Divide the Average Total Expenses to be Budgeted per Month by 2 to calculate Amount for Future Expenses Per Paycheck. (*Note – this assumes you get paid semi-monthly.)
- Open a separate savings or checking account called “Future Expenses Fund.”
- Create an automatic savings rule to save the amount calculated in #5 from each paycheck.
- When you get the bill for the yearly expenses, use the money from the Future Expenses Fund to pay for it!
If these calculations seem confusing or you want a ready-built tool to help you calculate this, please contact us to get started on financial coaching.
For those of you who pay your life insurance or car insurance premiums in full each year, then you are definitely in the right direction. For those of you can’t foresee being able to pay for an entire year’s premium at once, you can implement these steps and start to get ahead. Insurance companies usually give you an incentive and cost savings by pre-paying in advance. Otherwise, you may be charged a service fee anywhere from $6 – $24 which you may be unaware of.
Real-life Example: In looking at one of my previous car insurance quotes, here are the price differences in the different payment options and how paying in advance saves you money:
- Plan A – No Service Charge: $641.98 Total Premium
- Plan B – No Service Charge, with down payment and final two payments in Month 2 and Month 3: $653.98 Total
- Plan C – $6 Service Charge with down payment, next payment in Month 2, and last payment in Month 7: $691.98 Total
- Plan D – $9 Service Charge with down payment, payment in Month 2, payment in Month 7, and last payment in Month 10: $694.98 Total
- Plan E – $24 Service Charge with down payment and 8 remaining installments: $709.98 Total
There is a $68 difference in Plan A ($641.98) versus Plan E ($709.98)! Over five years, that’s $340 savings and over ten years, that’s a saving of $680! This is how you get ahead and start pocketing the money for yourself. Don’t pay extra for things because you didn’t plan ahead.
Real Life Example: I started doing this calculation about five years ago when we bought a house and started having a lot of yearly expenses, including pest control service, termite inspection, mulch replacement, weed control, etc. Just to share how much this number can be, for our family, it comes out to just over $800 a month that we have to auto-save into a Future Expenses Fund! Wow, that’s not an insignificant number! Not having that pre-saved a year in advance would completely wreck our monthly budget when those bills come due. So you can see how if you haven’t figured this out for your family or small business, that these yearly expenses can keep you in the endless cycle of living paycheck to paycheck or becoming more in debt.
Take Action: Do this yearly expenses exercise today. You will more than likely be surprised on the $ amount calculated for Average Total Expenses to be Budgeted per Month. If you or someone you know could benefit from doing this but would like assistance, please contact us for a complimentary consultation and share this post.