Account for the “unexpected” known expenses

How do you account for the “unexpected” known expenses on a spending plan, budget, cash flow plan (all basically the same thing)? First, let’s define what is an “unexpected” known expense. It really is not an unexpected expense. It is an expense that you usually pay on a yearly basis. However, if you have not been budgeting for it in your spending plan/budget/cash flow plan, when it comes time to pay it you will think of it as unexpected. These expenses are items like your property taxes, home insurance, semi-annual or annual car insurance, home repairs, etc. that you pay once a year.

If you do not allocate some money in your spending plan to these items on a monthly basis, when you get the bill you feel the gotcha. You will then find yourself scrambling to find the money to pay the bill. In order to plan for these items, take the amount you pay for it annually and divide it by 12. For example if your property taxes are $1,200 a year, divide the  $1,200 by 12 and allocate $100 a month in your budget for that expense. Do this for each item and when the bill comes you will have the money. Open a separate savings account and put the monthly amounts for each item in that account. Then, use it only to pay the annual expenses from there. Make sure you keep track of the amounts as you withdraw the money each time you pay bill. This way you will always know how much money is left in the account.

Download your lump sum known expense form: [wpdm_file id=7]

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The second image links to www.thepennyhoarder.com site’s article about common retirement mistakes. 

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