How to Pay for Yearly Expenses without Going in Debt

publication date: Jul 17, 2007

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author/source: Jennifer Tankersley

Beyond the usual monthly bills like utilities or rent/mortgage, there are many expenses that crop up throughout the year for which many people are unprepared.  For example, someone who wears contacts knows that they need about $300 for a full year's supply.  Rather than putting items or services on a credit card and paying interest for the next several months while they are being paid off, List Plan It suggests creating Funds to accumulate money in anticipation of the needs that arise in life.

The first step you should take is to analyze your family's yearly expenses (not monthly bills) to determine what funds you might want to establish.  They could be Doctor, Dentist, Auto Maintenance, Home, Vacation, Pet, Gifts (this is a BIG one), Clothing, Oil, Big Ticket Items (TV, stereo, trampoline, etc), Holidays, His/Her, Kids.  Go back to your Checking Account Register or your credit card statements to find out how much you spent in each category in a year.  Here is a sample list:

Medical (Dr. visits, eyeglasses, Dentist)                         $1200/year           
Vacation (Weekend trips, Big Getaways)                       $1200/year           
Auto Maintenance (Oil Changes, Repairs)                      $1,000/year          
Gifts (all holidays, special occasions)                            $1,800/year             
Clothing (All members of the family)                            $1200/year            
Home (New Curtains, Picture Frames)                          $1200/year              
Holidays (Parties, Crafts, Food)                                   $600/year              
Oil (Winter Heating Costs)                                           $1200/year             

The next step is to divide those yearly estimates by 12 to get the monthly amount that  you need to set aside.  If you are paid bi-monthly, then you will still need to divide the monthly amount by 2 to find out how much you should deduct from your account every pay period.  So it should look something like this:

Medical                        $1200/year                    $100/month                  $50/half          
Vacation                      $1200/year                    $100/month                 $50/half          
Auto Maintenance        $1000/year                     $84/month                   $42/half         
Gifts (all holidays)       $1800/year                     $150/month                 $75/half            
Clothing                      $1200/year                    $100/month                 $50/half          
Home                          $1200/year                    $100/month                 $50/half            
Holidays                      $600/year                      $50/month                   $25/half             
Oil                               $1200/year                   $100/month                 $50/half
                              _____________           ____________              ___________         
Pay Period                  $9,400/year                   $784/month                 $392/half
 
$784 per month or $392 per half (twice a month).  You might be thinking, "Whew!  That sounds like a lot of money to lose every pay period!"  But you are not actually losing it.  It is still your money and you still have possession of it.  It is even going to start earning you interest while it sits in your interest-bearing (you need one of these) checking account.  You might ask, "Deduct $392 to where?"  Go to the Finance section of List Plan It and you will find all of the Funds listed above.  Plan to either type in your deposits, expenses, and balances OR print out the Fund pages that you need and fill it in by hand.  When you are accounting for your bills and expenses in your Checking Account Register at the beginning of a pay period, deduct your yearly expenses amount just like a regular expense.  It should look like this:

Then go to the individual Fund pages and write the date, “DEPOSIT” in the transaction space, the amount you intend to pay per pay period in the credit column, and that amount in the Balance column.   Here is an example:

In the Checking Account Register example above, you will see that Yearly Expenses were deducted.  Then purchases were made that fall into the different Fund categories.   After you have recorded them in the register, you must go to the appropriate Fund page and record the expense there as a debit (See Medical Fund above – CVS Phar.  See also Gifts Fund below -- Target).  Then go back to the Register and record them there as a credit. 

Hole punch those printouts and insert them into a Finance binder.  Be sure that you have a fund for everything you and your family need.  Now the next time you go shopping, instead of feeling guilty for buying clothes that you don't feel you can afford, you will feel immense freedom because you will have that amount of money that you set aside.   Another choice is that you can let that money sit there and add up every pay period so that you can go on a true shopping spree!  You will find that getting an oil change for your car is actually a pleasure because you have the money sitting there waiting to be used on your car instead of fretting how you can come up with $20 this month.  There is one caution.  After you subtract the yearly expenses from your checking account register and then add them to your family’s funds, don’t be tempted to dip into those just because you have them.  Use them in the intended way or this system will have no positive effect for you.  It takes a certain amount of willpower to be able to allocate money to funds that can still be found in your checking account and then not spend that money whichever way you want.  You must discipline yourself to go by the amount in your checking account register and not think about the funds that are also sitting in your checking account.  Do this, and you will find that you have much more freedom to buy the things you would really like and still maintain a healthy bank account.