There are some bills that come due two or four times a year, such as car insurance, real estate taxes, and house insurance. Some annual special events require money, as well, such as birthdays and holidays. These can feel like financial surprises when it comes time to pay them because too often when something is out of sight, it is out of mind. Every time we get a pay check we portion some to rent or mortgage, some to the bills, maybe some to savings, and then some to us to spend. Or maybe we give ourselves a lot to us to spend.
So Christmas comes up or the car insurance and all of a sudden we wonder where the money is going to come from because we don’t think about these things when we spend our paychecks.
The easiest way to do this is to take what you spend annually on a given bill and divide it by the number of paychecks you get per year. That is the amount of money you need to put aside for that bill. For example, a person who gets paid monthly gets 12 paychecks a year. If real estate taxes are $2400 a year, then every month that person should be setting aside $200. If you get paid weekly, then divide the amount by 52 for 52 weeks in a year.
When you first start to do this, it’s going to be a strain because you’ll still have to pay those big bills without having set money aside. Maybe you decided to set this money aside in July and the car insurance comes due in August. It’s really tempting to go ahead and use the money you set aside in July to pay the insurance. It’s also challenging when you realize how much you need to set aside from each paycheck and how little money you have for fun stuff.
You cannot make this system work unless you are willing to get through that first difficult year without spending what you have set aside.
But if you can make it that first year, you win in two ways: one is that you have successfully disciplined yourself financially during a challenging time for an entire year. Secondly, every time one of those big bills comes in, you won’t sweat. The money will be there to pay it. That is an amazing, freeing feeling.