How to Budget Money for Annual Expenses

If you are trying to live within your means, sometimes expected expenses can still catch you by surprise. For example, if you pay car taxes every year, it may come as a bit of a shocker when you get tax bills for all 3 of your cars at once. You don't want these to ruin your month, so here's how to plan for it.

Write down a list of all your non-monthly (e.g., annual or semiannual) expenses. Write down the item, and the amount that you pay every year. Items could include the following: many kinds of insurance (automobile insurance, life insurance, homeowners insurance, renters insurance), memberships (club memberships, gym memberships, website memberships), annual events (Christmas gifts, family get-together's, parties), taxes (automobile tax, real estate tax, quarterly estimates), school tuition and fees, and so forth.
Add up all of the yearly expenses. Let's assume for our example that the total is $1560.
Divide that amount by 12. In our example, that gives $130. Alternatively, if you want to budget the money weekly, you can divide the yearly amount by 52 (and get $30), or biweekly (and get $60 in the example).
Set up a no-fee online savings account just for the purpose of budgeting for these expenses. Make sure that the provider has the ability to automatically withdraw money from your checking account on a regular basis. Some examples of such banks include HSBC Direct, E*Trade Bank, FNBO Direct, Emigrant Direct, and iGoBanking.
Set up the bank account to automatically draft your checking account on a regular basis, in the amounts you previously computed. (In our example $130 monthly, $30 weekly, or $60 biweekly).
When an expense comes up, pay the bill and withdraw the amount from your account. Make sure you have sufficient funds before withdrawing, if you haven't funded the account very much yet!

Copyright 2009 by Michael Nehring