Every month, there are the usual bills: rent/mortgage, utilities, etc, but there are many yearly expenses that crop up for which you may be unprepared. For example, someone who wears contact lenses needs about $300 for a full year’s supply. Since this is not a regular bill, you may be tempted to put that $300 on a credit card and then end up paying interest until the lenses are paid off. Another choice may be to take money from your savings, which is not recommended. The goal should be to accumulate money in designated “Funds” throughout the year in anticipation of the needs that invariably arise.
The first step is to analyze your family’s yearly expenses (not monthly bills) to determine what funds you might need to establish. Maybe you commonly pay a co-pay at the Doctor’s office or frequently pay for a prescription. In that case, a Medical Fund should be created. Some other examples of Funds for yearly expenses are auto expenses, home, vacation, gifts, clothing, seasonal utilities, holidays, and big ticket items (TV, stereo, trampoline, etc). You can estimate about how much you need in a year by revisiting the past year’s checking account register or your credit card statements to find out how much you spent in each category. Here is an example of some typical yearly expenses.
|Medical (Dr. visits, eyeglasses, Dentist)|
|Vacation (Weekend trips, Big Getaways)|
|Auto Maintenance (Oil Changes, Repairs)|
|Gifts (all holidays, special occasions)|
|Clothing (All members of the family)|
|Home (New Curtains, Picture Frames)|
|Holidays (Parties, Crafts, Food)|
|Oil (Winter Heating Costs)|
The next step is to divide those yearly estimates by the number of pay periods in a year (12 if paid monthly, 24 if paid bi-monthly, 26 is paid every 2 weeks, 52 if paid once a week). This will help you discover how much you need to add to those funds every pay period. So, if you are paid bi-monthly, it should look something like this:
|Gifts (all holidays)|
Now that you have determined how much you will likely spend on each category of your family’s common yearly expenses, you are ready to create a safe place to start putting aside that money (on paper, not under your mattress). For each yearly expense from your Yearly Expenses Worksheet, you now need to print a Fund page (see Financial Planning for more fund choices available to subscribers of ListPlanIt.com). After your next payday, you will deduct the total of your yearly expenses from your Checking Account Register (see Figure 1).
Then you will go to each fund page and write the amount you are saving for each category in the credit column (like making a deposit to each fund). For example, you might be depositing $50 to the Medical Fund or $75 to the Gifts Fund. (See Figures 2 and 3)
Now you have money that will start to grow with each paycheck and will be ready when your family needs it. When you need to pay for an expense that fits within one of the funds, show it as a regular debit or payment in your checking account register, but then go to the appropriate fund page and debit the amount there as well. Then go back to your Checking Account Register and pay yourself back as a credit. (See Figure 1 again) You could create a separate checking account for your funds alone. However, if you trust yourself to let that money grow and to use it only for its intended purpose, then I suggest only treating your funds like they are in a separate checking account even though all of your money is actually together in one account. If you have had trouble creating a budget or you have been using a credit card to pay for these expenses, then give this system a try
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.
Jennifer Tankersley is the creator of ListPlanIt where you’ll find hundreds of printable pages including Financial Planning pages to help you put you finances in order such as bill schedules, a checking account register, and many pages for different funds for tracking your family’s yearly expenses.
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