Recently, I had a number of large bills come due at the same time.
My web hosting service (that contains this site) came due, and I always renew for as long a time as possible (to get the best rate). This turned out to be an ouch-inducing $250.
I also use a Post Office box to get my mail, and I pay that yearly as well.
There were a few other bills that all seemed to happen at once. And I don’t know about you, but I don’t have $500 extra in my budget just hanging around, and I won’t go into debt over these purchases either.
I’m sure this has happened to you as well. So what to do?
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Months, not years
I talk endlessly about the benefits of creating a monthly budget. Everything that comes in goes out, planned out on paper (or Excel, or your phone, or wherever) before the month begins. That way, you’ve given direction to your finances. Nothing is left to chance (aside from emergencies).
I’ve used the month as the standard unit of budget because it provides the most convenient length of time. Many bills happen monthly, so it wouldn’t make sense to do a weekly budget most of the time. And a year is far too long to be able to plan it all out in advance. So a month it is.
But this doesn’t always work when yearly bills are due. With something like a magazine subscription, you don’t really need to handle it specially, but a large bill, such as property tax or car insurance, this may not fit into your monthly budget.
This doesn’t mean that you’re doing anything wrong, of course, but at the same time, you still need to handle this situation.
The solution is to create a yearly savings fund.
Another type of fund
I’ve talked about the benefits of separating your savings. If you’re saving up for something big, you might as well create a separate pile for it. (Online accounts make this easy.) But it feels like too much hassle to create too many different accounts for individual bills.
So what you do is pro-rate the bills into this yearly fund. Have a $300 bill once a year? You need to put away $25 a month. $500 twice a year? That’s $84 a month. And when the bill is due, you just transfer the money back to your account and then pay for it outright.
The important thing here aside from the action is to change the way you think about yearly bills. Just because the yearly bill isn’t due this month doesn’t mean you don’t need to handle it. You don’t get a pass for 11 months, otherwise you’ll be scrambling on month 12. A failure to plan doesn’t turn make something an emergency.
That aphorism about eating an elephant
Do you say you don’t have enough wiggle room in your budget to put money away monthly? Well, I’d initially say that’s not true, that you probably could find it. But if putting away some money monthly isn’t doable, then the larger yearly bill isn’t doable either, and you may be wise to evaluate if you can alter or ditch this particular bill.
My guess is that the yearly bill only seems untenable, only because it’s so large. Split it up, and it will seem more manageable.
As for my hosting bill, I actually dipped into my float to pay for it, something I don’t like doing, but I had enough to cover it. I’ve since set up a new online savings account, and now put a small amount away each month. Not much, you understand; I could probably get away with maybe between $25-$50 a month.
Give it a try, and you won’t be saddled with a giant expense when the time comes.
But enough about me: How do you plan for yearly bills?