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Excel(R) Calculators Affiliate Program

     Expense                    When is it due?          Annual Amount
     Auto Insurance             every 6 months           $
     Taxes                      April 15th               $
     Vacation                   2 x's per year           $
     Christmas                  December                 $
     Birthdays/Weddings         # of times per year      $
     Spring/Winter clothing     about every 6 months     $
     Tuition & Books            once per semester        $
        

The easiest way to estimate your costs is to use the amount you spent last year on the same items, or at least a close guess. If your salary will change, then see the article titled "Planning for your tax bill" to estimate your taxes. Once you’ve established a list of expenses (scary isn’t it?), decide how you are going to pay for them. The easiest way would be to divide the totals by 12 and save that amount each month. Of course some of these ‘events’ may only be a few months away. Simply divide the amount you plan to spend by the number of months until the event and save that amount each month.

Another option is to allocate any extra paychecks or GUARANTEED bonuses to pay for certain events (never count on ANTICIPATED bonuses, this could lead to major problems). Let’s say you get a $500 bonus every Christmas. You may decide to use that bonus towards a January vacation. Or, if you get paid every two weeks, as opposed to twice per month, you will get 2 extra paychecks each year (assuming you do not have a monthly budget that includes those 2 extra paychecks). If you get paid every week then you will have four extra paychecks per year. If this is the case, look at a calendar to see which months you will receive the extra paychecks. Perhaps you will receive one extra paycheck the same month that you are taking a vacation or your car insurance is due. For all practical purposes only plan on receiving 75% of your extra paychecks because you will inevitably spend extra money as you anticipate your extra pay.

Once you have determined how much you need to put aside for these anticipated expenses, you must determine a system for saving. One option is the cash envelope system. With this system, you simply label one envelope for each of the bills-to-be and put the regular savings amount in each envelope. Many people find this system tempting (easy access to cash) and somewhat unsafe. Another option is to set up a separate savings account at your bank for each of the anticipated bills, maybe even have money automatically transferred into each account monthly, although your bank may not allow multiple accounts. A third possibility, the one I currently use, is the spreadsheet system. Every pay period, when I transfer money into my savings account (one amount), I use a simple spreadsheet at home to earmark where certain dollar amounts go. For instance, if I put $100 in savings I may put $50 for insurance and $50 for vacation on my spreadsheet. Of course, I keep a running total of each category and an overall total to make sure my balance is correct.

The great part of any of these systems is that you now have established some serious goals, ones that will save you many headaches down the road. As you track your individual ‘accounts’ growing, you are actually watching yourself achieve your financial goals. Although savings may not give the same type of instant gratification that spending does, watching small dollar amounts grow towards a goal and knowing you won’t have to worry about your car insurance is pretty close.