There’s that feeling of dread as you open the envelope. You know what’s inside, but you’re not quite sure what the damage will be. Your heart races…oh no! Your annual DMV registration bill is a whopping $135! You just socked away $100 in your savings account last month! You feel discouraged as, within an instant, you take out more money than what it took you a whole month to put in. “Why do I even try?” you ask yourself.
Unexpected Bill? Really?
Ok, let’s be real here. How many of those “unexpected” bills are truly unexpected? That DMV bill shouldn’t have been a surprise. You knew it was coming. You just didn’t plan for it.
Two months ago when I had to pay $150 for a 6-months supply of contact lenses, my first thought was, “Ugh. This is why I keep wiping out my curveball fund.” But no, that’s not why. I know I have to pay for contact lenses every 6 months. Yet year, after year, after year, I am constantly “surprised!”
Take Command Over that “Surprise” Bill
How? Well, again, you knew it was coming. I knew it was coming. That means we can plan ahead to make this year a financial success. So I decided to take 5 minutes to list all the “unexpected” expenses I could think of: DMV registration, AAA membership, contact lenses, birthday gifts, car repair/parts, etc. Then I took 10 minutes to look up old bills (How much did I pay for motorcycle registration last year?) and wrote in the amounts on my list. For variable items (e.g. car repairs, gifts, and the like), I allotted an arbitrary amount. To form an educated guess on what this amount should be, I sized up some details, such as how many people do I need to buy presents for, how many weddings or baby showers am I attending this year, how many miles do I drive (this dictates frequency of vehicle service), etc.
I came up with a total of $150 a month for these “unexpected” expenses. That sure is a lot more than I expected!
Now, I’m also of the belief that most of us aren’t rational. We know we should do something (save money, eat healthy, etc.), but we don’t. Psychology plays a major role in setting oneself on the right path, so now that I know I need $150, I’m going to assume that I don’t have the willpower to diligently put it aside every month. Instead, I’m going to automate it. I know, I know… “Automate your savings!” is no novel idea. But the key here is to know how much to automate and why, so you can stop being ambushed by these expenses every year!
Your 2012 Game Plan
Here’s what you should do (Total Time: 20 minutes):
- Jot down a list of all those bills & expenses that catch you off guard every year
- Figure out the annual cost for each of those items, add them up, and divide by 12 (months)
- Once you’ve figured out your number, set up the monthly automatic transfer into a separate savings sub-account under your general account (So as not to be mixed up with your “Hawaii Vacation” money). You can do this with ING.
Now, when you get that annual bill, you’ll be prepared with money from your “’Unexpected’ Bills” fund and you won’t tap into your Curveball Fund. Leave the Curveball Fund for the truly unexpected in life.
Saving Money in 2012…Here You Come! How do you plan to handle “unexpected” bills?