annual expenses

If there was one thing I really sucked at in the last financial year, it was to plan for in advance for paying the self-assessed portion of my income tax liability. The result — I ended up paying a big chunk of of money as income tax due plus penalty plus interest just before filing my income tax return. Sucks! Really.

Thanks again, to the parked emergency fund, which hadn’t been used since quite some time, I was able to bail out of the situation without a hassle.

Going forward though, here’s my simple strategy for handling this situation –

  • At the start of each financial year (that is, in April), assess, and for all practical purposes this will be a close enough approximation, the self-assessment income tax due. But for this financial year, I’ll have to start from September.

  • Treat this as just another “annual expense.” My approach for saving towards annual expenses has worked very very successfully over the past few years.

  • Pay the saved amount in chunks at the start of each quarter so that some of the weird advance income tax rules are complied with.

  • I will either end up overpaying a bit or underpaying a bit — since my assessment of the income tax due is an approximation. And this should be OK because if I overpaid I’d later get a refund and if I underpaid I can pay the final balance due without attracting any penalty plus interest.

That should work. But how about you? If you’re in the same situation, how are you handling things?

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How I Plan For and Pay Property Tax?

by Vinaya HS on April 28, 2011

in Finance

Whew! I paid our property tax for 2011-2012 yesterday. Sounds simple but there’s some basic planning that goes behind it.

Here’s how.

  • Property Tax is a line item in my Annual Expenses Planner. That means I save a little [and equal] bit each month under the expense head “Annual Expenses” so that when it’s time to pay up, I have the funds ready and available.

  • Unexpected things do happen — for example the cess on waste management that you now need to pay based on your property’s plinth area. In my case, this meant an additional and unplanned outgo of Rs 360 for this year. But when you’re prepared for the bigger picture, these small things really don’t matter.

  • I generally pay property tax online — means I used my credit card (see, I don’t abhor credit cards as most of you believe). However, I immediately did an Account-to-Card transfer and settled the bill. Peace of mind.

That’s one more annual commitment for this year done with and done without breaking a sweat.

I’ve now written quite a bit on planning and saving for your annual expenses, so much so, that many of you have written in and asked for an annual expenses calculator. I’m working on one and will publish it as soon as it’s done. Watch this space.

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Each Monday morning, I plan to post my thoughts on Organizing Your Finances. Through this series, I hope to share a tip or two that address a common problem that many of us face in our daily lives — that of organizing our finances. I’d love to hear your thoughts on this initiative and would love it more if you could share a tip of your own. And, as always, do spread the word if you find this useful.

Last week’s exercise involved identifying your annual expenses. Once you have this list written down, the next logical step is to chart a plan for meeting these expenses.

In the past, I’ve sometimes been blindsided by my annual expenses and 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.

One day, 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 is due, I simply issue a check from this saved amount. Result: no rummaging for cash; no credit card usage; zero stress.

Given my stress-free experiences with this method, 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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Each Monday morning, I plan to post my thoughts on Organizing Your Finances. Through this series, I hope to share a tip or two that address a common problem that many of us face in our daily lives — that of organizing our finances. I’d love to hear your thoughts on this initiative and would love it more if you could share a tip of your own. And, as always, do spread the word if you find this useful.

Often, we’re so caught up with our day to day expenses, that we forget to think about those annual ones — the ones that suddenly creep up from nowhere and when money’s really tight in your wallet. Generally speaking, any expense that you pay for once a year counts as an annual expense. Typical examples are insurance payments, property tax payments, health-club memberships, 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.

But you can do better. Do this exercise today.

Make a list of all your annual expenses — list each expense, the expense date, and the expense amount.

Example:

1. Car Insurance, May 01, 2010, Rs 10,000

2. Gym Membership, June 15, 2010, Rs 15,000

I was shocked when I totaled my annual expenses. How about you?

Next up: An annual expenses savings template. Stay tuned.

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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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