Handling Periodic Expenses
Do you struggle to come up with the cash to pay your car insurance, property taxes, or other periodic expenses? If so, you are not alone. Things like food and gas are always on your radar, but if you only pay for something once or twice a year, it is very easy to forget to budget for it. However, a little planning can make paying for periodic expenses much easier.
The first step is to figure out what periodic expenses you have and how much they cost per year. You may want to look through your bills or checking account statements to help you remember them all. List both fixed expenses, such as insurance, as well as variable expenses, like car repairs. Obviously, you will not know to the penny what you will be spending on variable expenses, but you can take an educated guess.
Next, for each periodic expense, divide the yearly cost by 12 to get the per month amount. This way, you can start thinking of it as a monthly expense. Your car insurance is not costing you $600 every six months – it is costing you $100 a month. (Sure, mathematically they are equivalent, but it is much easier to come up with $100 on the spot than it is $600.) Instead of paying it to a business, like you do with regular expenses, you will just put the money aside in savings each month.
You can put everything in one savings account (don’t leave it in your checking account), but many people prefer establishing separate accounts for different purposes. Not co-mingling funds can make it easier to, for example, not blow the money for your car insurance on your vacation. Some financial institutions allow you to set up subaccounts within one savings account. Otherwise, you can open new accounts. (Be sure to pay attention to the minimum balance requirement and fee schedule.) After you have set up the desired number of accounts, determine how much you want to go into each one. If possible, have some of your paycheck directly deposited into your savings account(s) or set up a regular automatic transfer from your checking account to your savings account(s).
If, despite your best efforts, you are unable to save enough to pay your periodic expenses on time, talk to whomever you owe. Can you lower any penalties by paying what you can now? Can you set up a monthly payment plan? Charging things to your credit card when you cannot pay off the balance in full the next month is usually not wise, but in this case, it could be the best option if the interest you are charged on your card is less than the fees you are charged for paying the bill late. However, you don’t want to make it a habit. If you currently cannot put enough in savings, it is a good idea to examine your expenses to see what you can cut to free up cash.By thinking about periodic expenses year round, they do not have to be a cause of periodic alarm.
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