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Each month we’re so caught up in managing our day to day expenses that we tend to lose focus on our annual expenses. Generally speaking, any expense that you pay for once a year counts as an annual expense. Typical examples are insurance payments, property tax payments, maintenance contracts, and such. We tend to lose focus on such expenses because they are spread out through the year. For instance, you could be paying your vehicle insurance in January, your property tax in May, your health insurance in September and so on. Often, when it’s time to pay for such an expense, we find ourselves rummaging for the required cash. Worse, we simply give up and charge these expenses on our credit cards.
In the past, I’ve been through similar experiences. Back then, I always used to think “Wouldn’t it be wonderful if I could save regularly so that when an annual expense is due the money is already there in my account?” For a long time, however, I didn’t actually do anything about it.
About an year back, I set up a cash flow model for my annual expenses using Microsoft Excel (you can download a template here) and arrived at a sum that I should save each month. I set aside this sum every month from my salary. Whenever an expense was due, I simply issued a check from this saved amount. Result: no rummaging for cash; no credit card usage; zero stress.
Given my stress-free experiences this year, I encourage you to first identify and then save regularly for your annual expenses. Psychologically, you can simply treat this monthly sum as another EMI payment.
What do you think? Do you follow a different method?
PS: Let me know if you’re having any difficulty in understanding my template.
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