Canadian Budget Binder

Projected Expenses what on earth are they? I know I’ve had many people who are starting to budget now thanks to this blog and my persistent chirping like an old git (but I’m not that old) about why budgets are so important to anyone. Just the other day a reader asked what amount of debt we had before we needed to get back on track and on a budget. The answer is that we would have budgeted with no debt even though we actually didn’t start budgeting until 2011 on a spreadsheet. There are many reasons why people go into debt but the big reason is because they are not budgeting.

We started the concept of budgeting on an excel spreadsheet and it grew to what it is today. Our spreadsheet is named the Canadian Budget Binder Spreadsheet which will be available shortly to all the fans who want to try it out. In the meantime I have many free downloadable money-saving tools to get you started with your budgeting journey including a basic budget sheet.

Moving forward to 2012 we reflected on our 2011 year and were confused about why our emergency savings would go up and down especially since we were budgeting like we planned. I mean we stuck to the budget but what was going on?

I’ll tell you what was going on, we were skimming from our own emergency savings to pay for stuff that wasn’t even an emergency. How could that be? Eventually we realized that we weren’t saving money for expenses that occur every 2, 3 or 4 months or even yearly. That is when our “projected expenses” account was born.

Our definition of projected expenses are expenses that have yet to be billed or purchased but we know we will have to purchase or pay for at some point in time. Effectively these are the numbers many people forget about when budgeting but are crucial to overall budgeting success. The money has to come from somewhere to pay for these bills. For those that don’t have an emergency savings account, where are you getting the money from if you are not saving for it? Most people get overwhelmed and put it on a line of credit or credit cards but do they really need to do this, probably not if they budget correctly. This is how debt can easily start to build.

Here is an Example:

Yearly we need to get licence plate stickers at $74 each so $148 per year.  We save $12.33 every month all year-long in projected expenses for this expense. We calculated and figured we would need about $160 a month for gas for our vehicles BUT we didn’t factor in maintenance costs ie: oil changes, Krown rust control application every winter, plate sticker and 5 year licence renewal etc. So where does this money come from if we are not budgeting for it? It comes from the emergency savings, but are these expenses really what we would call an emergency? Not in our books they are not, at least not any longer. These are everyday expenses just spread out throughout the year although not everyone has emergency money either.

Another example is our Hydro/Water bill that comes every 2 months. If the bill did not come in April that money would get dumped into the emergency savings then pulled out again in May when the bill came due. So we think we have x amount saved in our emergency savings but do we really? What is the true number? For us we wanted a true number not one that we would have to estimate.

What did we do?

We developed the “projected expenses” account with President’s Choice Financial. It’s actually just another savings account along with our high interest and chequing account. So we now have 3 accounts with PC bank that we shuffle money into each month. If you think it sounds time-consuming or tough, think again, its pathetically easy but you must be organized to budget in the first place. If you can’t grasp the concept of keeping organized with your finances and budget you can potentially make a right mess of your finances when banking.

1. Chequing Account
2. High Interest Savings Account
3. Savings Account (projected savings)

We needed to think of everything we “knew” we would have to pay for each year when designing our budget and our categories. I understand that things will “pop up” but that’s why it’s important to have a miscellaneous category and to think outside the box when setting projected expenses. Worse case you save a bit more money than expected but at least you aren’t pulling money from places you shouldn’t. It also helps the first year to build up the account so the money is there to override expenses as they come in.

So, if you have $2000 in the projected savings account and your taxes come due at $843 and a few other big-ticket items the money is ready and waiting to get used. You have to start somewhere so it will take time to build up the account for the overlaps. You decide what categories you develop that are projected expenses and what are not. We broke it down and although we have more categories than most we at least know that we are saving for what we know we will, at some point, get billed for.

So again to keep this example simple lets look at our yearly house taxes as that’s a fair bit of cash coming out of the bank account each year.

Example: We pay about $3200 a year for house taxes every 3 months 4 times per year the city wants just over $800 from us. This money used to just get pulled from our emergency savings- wrong.  We never even factored it into the budget let alone saved for it as we just went to the big account (like turn off the big light) every time we needed to. Sadly the excitement of the emergency savings account growing had lost its appeal. It was like seeing your stocks or investments going up and down every month and not understanding why or better yet not trying to figure it out.

So, now we have a category named “house taxes” and we save around $278.00 monthly. At the end of the month we look at our budget and it tells us how much money we need to transfer to our “projected expenses” account and we do just that. It’s that easy, as we set it up to tell us how much to move. We move projected expenses all year-long even if a bill is paid  as the overlapping is always needed especially going into the next year.  Don’t worry you won’t lose sleep on interest loss from a high interest savings account but you also won’t be sitting on thousands of dollars you won’t be using.

When the bill comes due now we just take the money from the “projected expenses” account and we don’t have to worry about our high interest savings account going down. It’s also nice to know that the money is set aside for these expenses when they come due. Like I mentioned earlier some people don’t have an emergency savings so the money has to come from somewhere to pay these bills. If you are super disciplined you could keep it in one account but it’s easier for us to know what’s what by having the separate accounts.

So if you struggle when those bills come in that are not monthly or unexpected sit down with a piece of paper and look at your budget categories. Think about each category and see if you are missing some things that you should have added in and should be saving for each month. You can see our monthly family budget here and see what we have in our budget as projected expenses. The best feeling is knowing the money is there and seeing our emergency savings grow towards the goals we set out.

Over the past 4 months I’ve had a few of my fans testing the Canadian Budget Binder Spreadsheet and here is what one fan had to say….

I just showed my hubby our bank balances and he was very impressed with them. We have over $2500 in our chequing account and just over $1000 in our projected expenses account. This may not seem like a lot to you, but it’s AMAZING for us. We used to always be “in the hole” and living on our credit line. He’s even more happy because I let him enter a charity golf tournament this weekend (the guy running it knows I’m cheap so he let him join for half the price because they needed another guy). A small cost of $55 and I make a happy hubby…I can handle it.

Thanks Mr.CBB for all your hard work.

So although this may not be for everyone it works for us and it really helps us to see a clear picture of our finances each month.  It also helps couples who budget together stop with the money fights and money problems they have because the money is being saved. I like to think of it as an open book and not a book with missing pages.

How do you budget for expenses that aren’t monthly? You can follow my 10 Step How We Designed Our Budget Series starting HERE!

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Related articles

• June 2012 Canadian Budget Binder Family Budget Update (canadianbudgetbinder.com)
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• I am a CEO (of my life) (live4now-save4later.com)
• Back to School Student Budget For College or University (canadianbudgetbinder.com)
• Reader Question: How Much Debt is Too Much Before You Need To Budget? (canadianbudgetbinder.com)

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