Trying to spend within your means every month is hard enough even before having a significant expense once or twice a year. Those tax bills, insurance bills, and unexpected expenses can throw a wrench in your budget if you do not plan for them. Make saving for annual or bi-annual bills and emergencies a priority, and avoid using credit to make ends meet.
What expenses should you plan for every month even though you only pay them once or twice a year? Auto insurance, home insurance, property taxes, vacation or holiday spending, and gifts for birthdays or weddings. Calculate how much you will owe in insurance premiums and property taxes, divide it by 12, and automatically have that amount deposited into a savings account every month. Estimate how much you will need to cover vacation, holiday, and gifts for the year. Again, divide that amount by 12 and deposit into your savings every month. Saving to spend is a good way to reduce the debt that can build due to overuse of a credit card.
The hardest expense to plan for is the unforeseen emergency. Bills can surmount for someone who has a medical emergency or unexpected home repair. How do you prepare for the unexpected? Many financial planners will advise setting a savings goal for emergency expenses that equals the amount that will cover at least three months of your living expenses. Once you reach that goal, continue to contribute to your emergency account and every time you receive an unexpected payment, save that money in your savings account to help accumulate your savings cushion so that when these annual or unexpected bills come your way, you are prepared with extra cash flow to cover the cost.
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