Arghhhh!!! I Didn’t to Save for… Camp, Car Insurance, Property Tax….

Okay, you are getting used to me banging on about SPENDING LESS THAN YOU EARN each month, right? Maybe you’ve even taken my advice, looked at your spending and started spending less than you earn (take-home) each month. Why do you STILL feel so squeezed financially? Is this normal?

Barring any other extraordinary issues like home renovation, divorce, addiction, or secret double-life, the issue may be that you have not accounted for your ANNUAL NEEDS. What are annual needs you might ask, well, remember when you said you didn’t want to pay fees or interest on your car insurance by taking the monthly payment option and you’d be able to pay it every six months? What about when you decided to reduce your monthly mortgage payment in favor of paying your property tax annually? You’d find a way, right. Anyone hear the sound of a can being kicked down the road.

Annual Needs are those items you do not pay for every month (or every other), but you do not as of yet, explicitly save for. They can kick you in the rear financially and also put you on a slippery slope towards revolving credit card debt if you get surpised by them. Here are some typical Annual Needs:

  • Insurances – Car, term life, long term care paid every 6 or 12 months
  • Property tax
  • Family or Summer Vacation
  • Summer Camp!!! (what a racket that is…)
  • Estimated taxes if you are self-employed
  • Christmas travel/gifts/celebrations
  • Children’s activities that are paid in one lump sum

Do not forget your Annual Needs! Here’s how I like to remember them:

  1. Make a list of your Annual Needs
  2. Ascribe a total amount to each. You will have the exact amount for some like property taxes, and you will have to estimate others like family vacations.
  3. Total you Annual Needs
  4. Take the total and divide by 12 (months in the year)

The total divided by 12 gives you the amount you need to put aside each month to cover your annual needs. Save EACH month and put the money in your general savings account until you need it. You can reduce the total by the take-home amount of an annual bonus or a very consistent tax refund and divide the remainder by 12 if you plan to put your annual bonus or tax refund toward the items on your Annual Needs list.

The bottom line you must save for your annual needs as well as spending less than you earn each month to be financially fit. If you know ALL your expenses monthly and annual are taken care of, you will feel more relaxed and fearless about your finances.