Personal Improvement Blog
Budgeting
Manage those Irregular bills – how I do it
Jul 8th
Irregular Payments. I use this term for those bills that don’t occur with any definite period OR happen once in a year. Think Car insurance (and house taxes, annual maintenance etc). you get the idea.
Our initial family budgets used to have expense items for the month and we did those at the start of the month. We got wiser and then started having a standard set of items and approximate amounts for each month. We could then compare every month how we were doing against the “standard.” After a few iterations, we realized that our balances did not match what we spent (against the budget!).
The culprits were these irregular payments. What was causing even more pain was that to pay for each of these special items, we were scrambling at the last minute to make the payment (which was usually large). A few brainstorming sessions later, we came upon a few tricks to avoid such situations.
1. Create a timeline 
We made a list of all the possible payments for the year. These included
- Insurance payments
- House and maintenance taxes
- Car insurance
- Term fees at school for the kids
Then we put up the dates on which these payments were due. We observed that, by pure luck, there were not more than one payment on any month.
2. Reschedule Payments
If, by any chance, more than 2 such payments fall in the same month, you might want to consider moving them to another month. This may not always be possible, but there may be some payments which can be moved. For example, you can switch your annual premiums to a monthly schedule for a couple of months and then switch back to an annual schedule.
The key is to schedule them such that those months don’t bunch up together. There will be a bit of inconvenience when you set this up, but it may be good in the long run.
3. Schedule micro-payments
Once you have the calendar schedule of payments ready, you can move on to the really important step. Schedule micro-payments every month for such irregular payments. Some banks in the US, such as ING Direct, allow you to create sub-accounts within your main account. If, like me, you live in a country where these are not available yet, you can put these micro-payments in a single account and track them in a simple Excel spreadsheet. It is important (and obvious) that this “special” account must be different from the account that you normally use.
These micro-payments go into your budget like any other item, so that you don’t end up messing up your budget in those months. This is especially true for those people who don’t have a set income every month (like businessmen, independent consultants etc).
Bonus tip: Start these micro-payments in such a way that you have a sizeable amount for each payment. Also, for one or two payments, this may not be possible in the first year, but for the subsequent years.
Share your tricks and tips for managing home budgets in the comments.
3 steps to avoid “Money Leaks”
Mar 2nd
Sometimes, it is necessary to step back and revisit the focus areas – be it in life or in a blog. This blog is dedicated to helping people better their quality of life by making small improvements in their lives. Work, finance, self-development are usually what I write upon. The timing of these usually tends to parallel the area where I am working on, so that it is also a chronicle of my efforts in becoming a better person today.
Do you have a situation where you are left wondering where you spent that Rs. 5000 ($100) and finally put it under the GOK heading? Then this post is for you.
GOK=God only knows
In many countries around the world, cash is still king. I am not talking about Business Strategy, but at a more personal level. While plastic has become the de-facto method of transacting, cash is still important, especially for purchases and deposits below a certain amount.
In India, for example, you cannot use a card for payment, except for fuel purchases, unless the bill comes to INR 300 ($6). Therefore, when making multiple small purchases like a can of coke or stationery, you have to use cash, typically drawn out from an ATM. This can lead to “money leaks” – a state where you cannot account for money when you are looking at your monthly statement.
In 5 easy steps to find out where your money is going, we looked at going through your bank and credit statements and then setting up categories for your spending. This is possible only when you know what you spent the money for! If you have a series of cash withdrawals, without any corresponding attribute/bill, you cannot effectively track your money. Meaning, you cannot budget effectively.
Here are some tips to help you prevent such money leaks:
1. Add a “payment method” column
Add a column to your budget tracker named “payment method.” As the name suggests, you can put in how you are going to pay this item – through card, cheque, bank transfer or cash.
2. Consolidate Cash items
Withdraw enough cash to cover all the total cash items and divide them using the Envelope Accounting method. This will prevent you making ad-hoc withdrawals from Automated Teller Machines (ATMs) during the month. Once you pay the bill, mark it in your budget-tracking system.
3. Track your micro-purchases
This is possibly the most difficult part – tracking your small purchases – the coffee with a friend, the quick pizza while waiting for a train types. Don’t sweat the small stuff, though, unless you are penny pinching!
In your mobile or in a pocketbook, jot down the expense under broad categories for the expense, such as food/fuel/book/transport etc. Transfer this to the budget as soon as you get your computer.
Remember to plug this information back into your analysis of spending, to get an idea of such expenses.