I’m really new to budgeting. I wrote down all my expenses and how much I pay for them.
My question is about big yearly purchases—for example, I spend $800 a year on business insurance and $1000 a year for my cat’s annual vet appointments. Should I divide this by 12 and put it in my monthly budget under business/pets? But if I do that, won’t I end up under budget every month and then significantly over budget when the actual bill hits?
Do I just add the extra amount each month when I’m under budget, so it builds up?
My banking app has a budgeting section, but it doesn’t seem to track this correctly. It’s nice for showing where my money went that month, but I’m still keeping a separate spreadsheet.
Thanks for any help! Trying not to get overwhelmed
If you divide each by 12 and set that amount aside in a separate bank account. Each time you set money aside for it each month, the expense is marked as paid. Then, when the bill is due, you take all that saved money to pay it off. The transaction itself doesn’t need to affect your monthly budget.
I’d suggest a high yield savings account (HYSA) with ‘buckets,’ like Ally Bank. For example, my annual vet expense is $600. I add $50 monthly to my HYSA ‘Cat’ bucket. When the vet visit rolls around, I withdraw $600 to checking and track it as income. The HYSA also helps you make a bit in interest!
+1 for buckets. Wealthfront also has this feature. This strategy works great for gifts, trips, and similar expenses. Paying yearly for things like insurance can save a bit too.
People often use ‘sinking funds’ to put 1/12 of yearly costs into a savings account so it’s there when needed.
I budget differently—I list all bills by month in Excel. This way, monthly amounts reflect actual dues. Works great for our utilities, car expenses, and irregular bills.
Ali said: @Lennon
Isn’t the idea of budgeting to keep monthly amounts steady? I divide my bills to save an even amount every paycheck.
It’s about what works for you. My bills vary a lot each month, so I prefer a budget that reflects the real numbers each month instead of averaging them.
I’d use a ‘sinking fund’ here, dividing yearly expenses by 12 and saving monthly in a high-yield account (ours pays 4.5%). We track individual goals in a spreadsheet, like car savings or a future furnace replacement. Interest adds up nicely!
We use YNAB, which lets you handle this type of budgeting either way. Lots of people say it’s ‘life-changing,’ and the YNAB subreddit has tutorials that might be helpful.
