How We Save For Annual Expenses

I read it all the time in PF blogs, annual expenses aren’t surprises, you know they are coming.  Every year we have to pay homeowner’s insurance, car insurance, property taxes, etc. So why don’t we plan for them?

The Husband and I have developed a system that works pretty well for us.  It began the first time we bought a new car.  We set up a direct deposit of $300 for every paycheck to go into a credit union to make the car payment.  We bought that car in 2001 and we have still kept up the practice of depositing money every pay period. 

For many years, the money had no purpose so it was squandered in many different ways.  But several years ago, we started using that money to pay for our annual expenses. For us, these include our home owner’s insurance, property taxes, car registration for four vehicles, and our car insurance, which we pay twice a year.  We also try to pay baseball and soccer registration fees out of this account and, if there is enough money, some competition fees for our daughter’s dance studio.

Over the course of the year, these bills can really add up. It has really helped us to have at least most of the money readily available

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Our homeowner’s insurance is due in October, so we just paid it.  We had plenty of money in the account so it was paid in full and the account continues to grow.  Coming up in the near future, we will have to pay the first installment on our property taxes as well as our car insurance for the next six months.  These are both hefty bills, well over $1000 for each of them and I’m so happy we will have the money to pay for both of them.

In our household, we have to pay for a car registration once a month from January to April.  Again, these aren’t surprises, but as the old adage says, failing to plan is planning to fail. For many years, every time a car registration was due, it became a pitfall for our budget. In the past, many times, we actually paid our car registrations late because we just didn’t have the money.  Now, we always have the money to pay our car registration, on time and in full.

The reason we are able to do this, is because we automate the deposits.  On our own, we would never set aside $300 per paycheck into a separate account, even though we know we have these expenses due every year. We would still be acting as if these annual (which means yearly y’all) expenses came out of nowhere. We would still be falling farther and farther into debt each month instead of slowing clawing our way out.

This account also acts as a mini-safety net for us.  In a sense, it acts like another emergency fund. The amount of money in this account is always fluctuating, but there is usually at least a few hundred dollars. In a real and true emergency, we have another small cushion to fall back on because of this account.  We haven’t had to use it in such a way, but it gives me some peace of mind just knowing that it is there.

This is actually the only account we automate. We make it work, but we can’t seem to save any more than that a month. Almost all financial advice you get starts with “pay yourself first”. With this account, that’s exactly what we’re doing.