This is Part 2 of my "pulling back the curtain" to show you how I actually track our money. In Part 1 I showed you how we track recurring monthly expenses, and now we're going to talk about how I track annual expenses. In my previous attempts at budgeting it was always these annual expenses that got me into trouble. Finally I found a way to track that works for us and here it is (click on the image to view it larger):
This is a truncated view with more columns to the right, but hopefully this gives you the idea. Let me walk you through this admittedly un-pretty chart.
In the upper left hand corner I have 2012 expenses, which started at $15,007.66 based on my estimation of what I would spend on my annual expenses. Then in the blue headings I have each category of annual expense that we track. These are insurance, car tags, health, cat health, car repairs, taxes, Christmas, work clothes, and vacation. Of course you may have different categories, but these have worked well for us.
Then, as the year goes on and payments are made that belong to these categories I track them, and a brief description, under the appropriate heading and the amount left in the 2012 expenses bucket is decreased accordingly. The reason "Health Savings" has its own total above the category is that the expenses for that cost are not coming out of the same bucket (checking or savings) as everything else, but are rather being pulled from our HSA account (and the total of that account is tracked at the top). The total for those costs is however included in the initial amount set aside for these expenses.
The reason that I include a brief description next to each item is that I find it is really easy to forgot how expensive things are. This way I can see exactly how much it cost to repair my car last year, or how much we spent on each member of our family at Christmas. I think this will help us to more accurately estimate for the future.
So, where did the initial $15,007.66 come from to start with? This was the key to making this work for me. In December of 2011 I took a look at our finances and realized that we had enough in savings to "put aside" the $15,007.66 for our 2012 annual expenses. All this meant was that in my spreadsheet I included that amount in our networth, but removed it from other calculations such as our House Fund. You could also create a separate account for these items, but it was enough for me to delineate it in my spreadsheet, effectively making me feel like that money was set aside and when an unexpected car repair came up, I didn't panic. The money was there, and the bill didn't hurt us one bit.
But then we had to go about replenishing our fund for 2013. I didn't want to simply lob $15,000 off at the beginning of each year even though we currently have the funds, because I want to budget as if we had less and had to sustain ourselves. I also wanted to "feel" how much we were paying towards these annual expenses each month. So, included in our monthly recurring expenses is a category to replenish the following year. You can see in our 2013 budget that we will be contributing $1,250 per month to our 2014 annual expenses bucket.
How do you budget for annual expenses?