The monthly bills are budgeted. Groceries, gas and miscellaneous spending are accounted for. Then, WHAM! There is an expense that, even though it was anticipated, there was no plan to actually pay for said expense.
Think Christmas. Every year it comes. Every year I say I will plan. Every year I fall short. Every. Single. Year!
Finally, Finally, a few years ago the reality dawned on me that saying it wasn’t enough. In addition to speaking the word, the planning and follow through had to happen.
And, again, to the rescue, comes the envelope system – on paper.
Here’s how:
- Figure out the annual amount of the planned expense. (For this example, I will use Christmas with an annual planned expense of $1,200.00.)
- Take the annual amount and divide it by pay days per year. Assuming 26 pay days per year, the annual planned expense becomes approximately $46.00 per pay.
- Every pay day, $46.00 gets moved to a savings account.
Easy peasy.
But what happens when there is more than one planned expense and only one savings account? Most of us do not have multiple savings account for the many expenses we anticipate.
That too is easy.
Here’s how:
- Start with a spreadsheet. (Or a piece of notebook paper. Or whatever works.)
- For each planned expense, repeat the above process.
- When money is moved to the savings account, an entry is made on the spreadsheet.
|
|
Christmas | Property Taxes | Vacation |
| Week 1 | 46.00 | 34.00 | 57.00 |
| Week 2 | 46.00 | 34.00 | 57.00 |
| Total | 92.00 | 68.00 | 114.00 |
At the end of the second week, there will be a total of $274.00 in the savings account. As tempting as it is to spend it, when it comes time to pay any one of those expenses, it is a happy day when the funds are sitting in the bank.
When an expense is actually paid, it is deducted from the column.
At any one time, the totals for all categories on the spread sheet should equal the amount in the bank.
It may not be possible to start planning for all expenses at once. That’s o.k. Start little. Start with one expense. And build from there.
It is surprising, but after gaining control of one expense, it is easier to gain control of a second. And a third. That is because an expense no longer has the ability to wreck a budget.
Give it a shot. And please, let me know how it goes.
Awesome advice!! I just started this with my summer childcare. I’m doing it as a monthly payment to my savings account so when summer roles around I don’t have to come up with all the money at once! 🙂 (I’m then tracking the balance in the notes section of my bills monthly calendar planner since this savings account is not only used for this.)
I also do a monthly payment to a savings account for gifts I have to buy throughout the year, whether it be birthdays, Christmas, anniversary, etc & I love when it’s time to buy a gift and the money is already there!!!
Awesome idea! Summer childcare expenses are something I hadn’t thought of but which, I bet, trip up a lot of families.
Thanks for sharing.
I love your idea and follow it for all of my yearly expenses — Christmas, birthday gifts and all the various types of insurance. Kids can also budget for Christmas! I just wrote a post about this here: https://nationalbankofmom.com/budgeting-christmas-gifts In this example, we started in September, but I think next year we’ll start in January to make the monthly savings amount much smaller.
So glad you like it! It is a life changer!
I am looking forward to heading over to your site to take a look.
Thanks for checking in.
Micki,
The system we use for Christmas saving starts every January and we have a savings account just for this. There are 52 weeks in a year. Starting with week one we transfer $1.00 from our savings account into the Christmas account. Week two we move $2.00 in this account, week three we transfer $3.00, etc. all the way to week 52 where $52.00 is transferred. (There is no fee for us to transfer money between accounts and we do it online). At the end of the year we have saved $1378 in our Christmas fund. Some years we have reversed it and started with $52.00 and worked backwards. I keep referring to ‘we’ because the bill paying passed to Don when he retired 4 years ago & he has continued this method for Christmas saving.
I can’t believe I overlooked this comment! So sorry.
What a fantastic idea!
Do you remember when we got a little over $600 a month. I kept it in envelopes after I cashed the check. So much for groceries, so much for gas etc. so much for Christmas fund etc. When we ran out of money for gas we stayed home. It worked for us. My expense envelopes. We always made do. 🙂
Yes we did. I had a good teacher!