Annual subscription plans are cheaper than paying month to month, especially for services that I frequently use such as music streaming. What is the best way to consider this type of expense in month to month budgeting? Should it be something that is considered an amortized expense?
I’m not an accountant, but when faced with these sorts of annual costs, I just budget and expense it in the month that it is incurred. It’s much easier than trying to expense it over any period of time. Ideally, have a sinking fund set up for larger expenses so you save up for it over a year, then expense it once paid.
Our bank allows us to create Vaults within our savings account. We have auto transfers set up to pay the ‘monthly’ amount to that account. Then when it bills annually, we move the money to checking when the credit statement posts.
I just treat it as an amortized monthly line item. I’m not budgeting for cash flow; I’m just accounting for where my money goes.
I use envelope-style budgeting and create envelopes for mini ‘sinking funds’ for these. If it’s a $120 annual subscription, I allocate $10/month to the category starting right when I pay in full. By next year, the money will be sitting and ready.
I call these my ‘irregulars.’ I list my annual expenses, spread them out so there aren’t two in one month, and average the cost per month. I budget that amount, and when the expense is cheaper, I save the extra for the pricier months.
I treat it like a sinking fund, putting a little aside each month leading up to renewal. This way, I already have the full amount saved up when it’s time to pay. Using Habit Money has helped me track this.
In YNAB, I divide the total by 10 and save for 10 months, so I have the money a month before it’s due. You can also divide by 12 for equal sinking/saving each month.