Budgeting Strategy: Annual Reoccurring Expenses
I’m not sure if this is a common strategy or if it’s been brought up before but I haven’t seen it so I thought I’d share.
For about 2 years I’ve been using this to handle ‘lifestyle creep’ and manage my annual expenses. It’s pretty simple but I’ve found it to be very effective. Basically, I’ll list all my annual expenses in my budget (e.g. Amazon Prime $119, Gym Annual Fee $59.99, Carbonite Backup $71.99, etc…). I add everything up (in this example $250.98) and divide by 12 to get my monthly cost ($20.92). I generally pay bills monthly, so adjust accordingly. I then will pay myself $20.92 each month (transfer to an Ally savings account). Every time one of those expenses comes up, I’ll withdraw from that account to pay the bill.
This has a few benefits…
1) Less surprises. You’re actively tracking all annual subscriptions, so it’s unlikely you’ll get a ‘surprise’ bill from something you signed up for a year ago.
2) Psychologically, you have immediate consequences when signing up for an annual paid service since your monthly bill goes up. This makes me think twice before signing up for something and not having to worry about it for another year.
3) Better control and visibility of ‘lifestyle creep’, I’ll frequently look at my annual expenses and ask myself if they’re really needed. I’ve eliminated / downgraded many services using this method and it has definitely saved me money along the way.
Again, not sure if this is common or not but hopefully someone will find some value!