How you can organise your Annual Expenses and earn an extra buck too….

It is easy to budget for monthly expenses as they are fairly predictable and can be funded out of latest month’s salary income. But we usually lose sight of the expenses that hit once or twice a year and pay attention to it only when it is due. 

Typically, the annual expenses incurred are children’s school fees, vacation expenses, festival expenses, gym membership, insurance premiums, etc. These are usually spread throughout the year. For e.g, your children’s school fees could be due in June, your gym membership in September, your insurance premium in February and so on. And then there are one time unpredictable expenses too which entail untimely cash outflow like home repairs or computer repairs. (In just less than a year, I spent about Rs.6,000 bucks on my laptop repair) 

For those who have abundant funds, the usual tendency is to fund one-time requirement from the past salary earnings which in most cases is lying idle for many months in savings account. 

And for those who live on a tight budget or are overtly spend thrift, they may be unprepared for it. They may fall short of funds to cover an annual expense, forced to charge it on credit card or may have to dip into long term investments.

But there is a wonderful way to organise your annual expenses.

Firstly, ascertain the cost of each annual expense & their respective timelines by looking into past bank or personal records. Be realistic in estimating your expenses. Convert it into a monthly figure by dividing by 12. This would help you to ascertain the monthly amount you need to keep aside to create the specific corpus. You can create FDs/RDs/liquid funds for each specific expense for the desired time frame. For instance, you can create a school fees fund for your children by opening a fixed deposit or investing a regular amount in recurring deposit. At the time of payment date, you would have the fund ready plus some extra buck as interest which you can utilise for your children’s tuition fees or some other expenses.

The benefits of saving & earmarking specific expenses to specific funds for a specific time frame are that:

(1) It would ensure that the big fund would be there when you need it. You would not have to scramble for cash at the last hour or resort to loan or disturb your long term savings.

(2) It would help you to remain disciplined to manage even the monthly budget as you would compulsorily be keeping aside a certain amount for your annual expense need. Think of the monthly amount to be compulsorily saved as your monthly SIP investment or home loan EMI and you would sure shot meet your annual requirement in a disciplined manner. The exercise would also automatically set the limit for expenses like vacation where you are tempted to go overboard in spending.

(3) The monthly saving that you would invest will also be growing & earning money for you until you need it.

(4) And the best part is zero stress. You would feel immense freedom to spend the money you have saved as you had already budgeted and arranged for it. 

Do you have any other method that you follow? Anything that works for you. Let me know your suggestions.