Proactive budgeting is a great step to implement in your financial planning journey. Monthly bills are easier to budget for than quarterly, semi-annual, or yearly bills.
Property taxes, yearly income taxes, car insurance, and car registration are a few of the expenses that tend to be overlooked in a budget. Saving for these expenses monthly will help reduce the anxiety when those payments are coming due. You can do this by dividing the total of the bill by the number of months (3 months for quarterly, 6 months for semi-annual or 12 months for annual bills) that you have to save.
A simple way to accomplish this is to set up a savings account for these items and have an automatic transfer of money from your checking to the savings account for the total amount monthly.
Here are some examples:
• Example #1: Car insurance costs about $1,500 each year. In total, that’s a large number, but saving over 12 months — you only need to set aside $125 per month.
• Example #2: In 2020 the average American household spent on average $998 on Christmas. Saving a little each month can help keep you from having to use your “emergency” credit card or dip into savings. Over 12 months, that amount is $83.17 a month.
• Example #3: A family membership at the Carousel Gardens Amusement Park costs $265 per year. If you save $20.08 each month, that’s less of a financial impact, but the same amount of fun!
Make a list of all your expenses that do come with a monthly bill: gifts, travel, car registration, taxes, memberships, insurance (car and homeowner or renter), clothing, etc. If you have not been including these in your monthly budget then maybe it is time to start saving for these expenditures. This will help you make the shift to being a proactive budgeter versus a reactive one.