Budgeting Annual Expenses
Let's talk about how to budget for annual, semi-annual, and quarterly expenses in our monthly budget.
Perhaps this is obvious to some, but for the new budgeters out there have no fear...this is a simple one.
Annual Expenses
Annual expenses will likely be large and if you don't plan for them throughout the year, it can hurt your budget significantly. An easy way to account for one-time expenses is to take the total annual amount and divide it by 12. Once you have that amount, enter it in as a line item within your budget. Then, every month, add a transaction for that amount. Even though you are not literally paying it, you are essentially "booking" the 1/12th of the expenses ahead of time. This way, when it comes time to pay the annual bill, it won't be a total budget buster.
For example, let's say you own a house and need to budget for an annual real estate tax bill. We'll say your bill is $6,000 annually which means that you'll need to budget for $500 per month: $6,000/12 = $500.
Housing
Description
Planned
Spent
Remaining
Real Estate Taxes
$500.00
$0.00
$500.00
Use the same strategy for semi-annual or quarterly bills and expenses. For semi-annual expenses, multiply the expense by 2 to get the annual expenses, divide it by 12 and make entry in your budget accordingly. For quarterly expenses, multiply by 4 and then divide by 12.
Each month, use Budget Even to add a "phantom" transaction. That is, add a transaction as if you spent $500 to account for the annual expense within your monthly budget.
By using this process, you can keep those large one-time expenses part of your monthly budget.
-Patrick Lysaght, Founder