How We Level Out Monthly Expenses

Bills you pay every month require budgeting and tracking.  However, some bills flucuate in costs or even frequency.  We’ve developed a system where I allocate and track these expenses.  It works because we use a spreadsheet.  But, it comes in handy because we never miss a bill. Nor do we come up short on paying recurring expenses.  Here’s how we level out monthly expenses.

Types of Expenses

First, it’s helpful to determine what the expenses are that we level out.  Some of the obvious ones include:

  • Utility Bills
  • Insurance Premiums
  • License Tab Renewals
  • Auto Club Membership Fees
  • Charitable Donations

Over time I’ve identified some others that we also track and save for monthly.  These include:

  • Netflix
  • Other subscriptions (e.g. Amazon Prime membership)
  • Christmas gift fund
  • Camper storage fees
  • I even allocate for my costs in playing fantasy sports!

I am usually pretty on the mark when it comes to projecting the expenses that fall into this category.  What I have to do is allocate them out to cover costs for a year, even when costs are uneven.  Let me explain.  Many of the expenses above are monthly and around the same cost, but some are not. This is because of seasonal changes (higher electric bills in the summer, higher gas bills in the winter) or billing cycles for bills that aren’t monthly (the water bill every two months, the garbage bill every three).

Paying as you go would mean that some months you’d have money left over where other months you’d come up short.  The months you come up short can be a problem for many.  So, by averaging all of the costs for each category and then budgeting accordingly, we are always fully funded.

Utility Leveling Re-Imagined

The gas and electric companies already offer this service.  Both companies will allow you to pay a flat amount based on their estimates.  If you come up short, you do owe the difference.  If you overpay, they’ll lower your estimates.  This works for many people, and it’s sort of what we’re doing.  The benefit is that we keep our money!

One thing that you may ask is how this works when we come up short.  Say we budget $1,200 annually for electric bills, but our costs are $1,350. This means we ‘owe’ that fund $150 at some point through the year.  The way I work handle this is by keeping a ‘cap’ for some of the fluctuating categories.  So, for example, I have a $500 ‘cap’ on the gas bill.  Once we have $500 allocated toward gas, I know that anything further would be over funding the account.  If that happens, I’ll simply take the extra allocation and distribute it toward funds that are under allocated or that could use a boost.

It sounds kind of complicated, but it works well.  Of course I have been doing it this way for many years, and the system works pretty well.

Readers, how do you level out monthly expenses?  Do you create ‘sub-accounts’ off your main checking or savings?  

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2 thoughts on “How We Level Out Monthly Expenses

  1. I do the same for all expenses – budget for them monthly even if I pay quarterly (trash, water/sewer), semi-annually, or annually (life insurance, car tab/registration, subscriptions). I keep a spreadsheet that puts money in to those buckets, and “left over” money goes in to their own savings buckets for vacation, car repair, spending money, etc. I do need to create a bucket for Christmas Gifts and Birthday Gifts like you have – we went a little overboard end of last year for Christmas and now we . 🙂 And Wes’ friends’ birthday parties/gifts? yup, unexpected expenses there, especially when they have birthdays around the same time as his! Do you tend to buy presents during the year for birthdays/holidays and save them up? We sometimes do that if we see something for a good deal.

    • I know many people advocate the idea of buying gifts throughout the year, but it’s a very rare thing for me. The main reason I don’t is because I find it too risky to believe that what I’m buying at some point early in the year will be the exact right present months down the line. And if it’s not, then given that many store return policies limit you to just a couple of months, if it turns out to not be the right gift? You might end up getting stuck with it.

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