I get this question a lot when leading FPU or in one-on-one financial counseling.
I have questions about the one (or twice) a year payments. How do you put it in the budget monthly but then pay out a larger sum you have already saved up for without blowing the budget?
Great question. Here is what I do.
- I calculate the monthly amount for the item by dividing the expected amount into the period. So a $680 payment (car insurance) made every 6 months is divided by 6 to get $114 per month (rounded up).
- Next in our budget I have a line item that reads “Car Ins (s) $114”
- The “(s)” reminds me that this money needs to be moved to our savings account.
- Each month on the 18th (after mid month pay) I add up all the line items with the “(s)” and transfer that amount to savings. I record the amount for each line item in my sinking fund tracking sheet.
- Then in the month when the bill is due, in our budget I add an income amount equal to the 5 months of collected savings (in our example this is $570).
- At the beginning of the month I transfer the $570 in savings to our checking account and deduct it from the sinking fund tracking sheet.
- In that same month my “Car ins (s)” amount is $680.
Anyway that is how we handle it at our house.
Let me know what you do.