We have a small handful of large irregular bills that hit us throughout the year.
Property taxes. Income taxes (they’re lots of fun for the self-employed). Homeowners insurance. Automotive insurance. Life insurance. Car registration.
These aren’t monthly bills, but they still come in the mail pretty much like clockwork, and the amount of each bill is reasonably stable.
In other words, these bills aren’t surprising at all, but they certainly can sneak up on you and disrupt your budget for the month.
How can you handle these irregular bills and still achieve financial balance in your life? We do it by saving automatically for these bills.
It’s pretty easy to do. At the start of a given year, just add up all of the irregular bills you’re going to face in the coming year. How much is your property tax? How much is your homeowners or rental insurance? How much income tax will you owe? What about life insurance? What about car registration? You may have even more bills than that.
Make a list of what those bills will be throughout the year and how much you’ll owe on them. Then, add up all of those bills for a year, tack on 20% (for unexpected increases in property taxes and other rates), and divide by 52.
That’s how much you need to set aside for those bills each week so that you can easily pay them as they come in.
So, let’s say over the course of a year, I expect to pay $3,000 in property taxes, $500 in vehicle registration, $200 in life insurance, $800 in homeowners insurance, and $5,000 in income tax. Adding those up, that’s $9,500 in irregular bills (ouch!). I add on another 20% or so, making it $11,400, and if I divide that by 52, that leaves me with $220 per week.
Then, I just go to my bank’s online services and set up an automatic savings plan that pulls $220 each week from my checking account to my savings account.
Whenever one of those big irregular bills comes in, no worries – I just pull the appropriate amount from my savings account into my checking account and simply write a check.
This plan helps in a lot of ways. First, I’m not “blindsided” by a big bill which could force me to rack up some credit card debt in order to buy groceries because I didn’t plan for that bill. Second, I’m earning a bit of interest as I save for those bills. Third, and perhaps most important, I have complete peace of mind about these unexpected bills.
Planning ahead for your unexpected bills makes a lot of sense.
This post is part of a yearlong series called “365 Ways to Live Cheap (Revisited),” in which I’m revisiting the entries from my book “365 Ways to Live Cheap,” which is available at Amazon and at bookstores everywhere.