Whether you have a budget or not, it’s easy to forget big, annual expenses.
Because they don’t happen every month, it’s things like Christmas, birthdays and holidays which tend to escape our minds when we look at our bank balance. And forgetting about them means we’re likely to think we’ve more money to spend than we really do.
When these events rear their heads, it can be bad news for your finances – especially if you’re planning to spend hundreds, if not thousands, of pounds.
If you don’t have enough money, the best bet is to cut back on your spending or go without. But not everyone will do that. And not every annual charge is optional. To cover annuals expenses like car insurance you might be forced to use overdrafts or credit cards – and that can be incredibly expensive.
But if you plan for these to come along, you won’t need to borrow. There are the two simple things you need to do. It shouldn’t take more than 30 minutes.
1. Work out the dates that’ll cost you more
First, you need to know what those big, one-off expenses are going to be. I’ve listed the key ones below.
Make a note in your diary (I use the one on my phone) to highlight when those big payments are going to hit. This’ll help remind you, plus you’ll be able to spot any that are bunched together – those really expensive months.
The big events to budget for
The average UK family spends £800-odd a year on presents, decorations and food at Christmas. That doesn’t even include going out, travel or novelty jumpers. So it’s little wonder January is then so tough for people.
Birthdays and anniversaries
I wouldn’t worry too much about cards and going out for drinks here (unless you need to), but you do need to think about how much you want to spend on the important people in your life. Add a little extra too for any “significant” birthdays where you’ll want to up your gift game. Factor in things like anniversaries too.
Plus work out if you’ve lots happening around the same time which could put pressure on your cashflow. For some reason many of my friend’s birthdays are in January and February.
This might just be a one-off in the summer, or you might be jetting away every other month. However, many trips you take, the flights, hotel, day-trips, food and drink will add up. So think carefully about where you want to go this year – and how much it’s going to cost – before you book anything.
The main bills to plan for
Yes, you can pay for most insurance monthly via Direct Debit – but this usually works out more expensive. Instead you’re better off paying a lump sum upfront for the whole year. Take a look at how much you paid last time and add a little on to your total. If you’re not willing to shop around and switch, then add a lot more on!
The biggies are contents, building and car, but don’t forget travel insurance too. Together these could add up to £700 a year.
Your tax bill
If you earn any income outside your job, then you’ll probably have to declare it – and pay tax.
Unexpected repairs or replacements
This is more difficult to account for. You just don’t know what will go wrong. But when it does it’s rarely cheap. You can guess likely times for some costs, such as your MOT or a check-up at the vets.
If you can it’s worth trying to build something in here. Let’s say a £300 annual buffer as a target.
2. Work out the annual cost as a monthly cost
Now work out the total cost of those one-off expenses over a year. You can guess amounts, though the more accurate the better.
Then divide this total by 12. What you then have is the figure you need to save every month. Put this away and you’ll have the funds available when you need them.
Too much to save?
Of course, once you’ve added all these totals together and worked out the monthly cost, you might be a little shocked. Yeah, it will be a chunky amount of cash to save! For the main costs listed above you could easily be looking at £250 plus every month.
If you can’t afford to put aside this monthly total – well that’s a sure sign you’re overspending. You’ll either need to find more money, or cut back your intended spend.
What you need to remember is that you’re spending this money each year anyway. It’s just you’re now budgeting for it month-by-month, rather than borrowing to pay for it or scraping about for enough cash when the bill comes.
Plus don’t forget that doing this will save you money too as you’ll not pay a premium on insurance, or get charged interest for putting it on credit cards.
One last tip. Move this money out of your current account into a separate account, or even accounts. This’ll the money isn’t eaten up by other, less essential, spending.
How to keep saving once you’ve started