What are Projected Expenses? These are future expenses that need to pay at some point in the year.
Today, let’s discuss what projected expenses are and why they are critical to the success of your budget.
I will also touch on how saving for projected expenses has helped us become debt and mortgage-free.
Saving Money For Upcoming Future Expenses
Please note at the time of writing this post; we did have mortgage debt to pay off.
It is possible to pay down debt and work towards your retirement goals simultaneously.
Our Projected Expenses Journey
Recently, a reader asked what amount of debt we had before getting back on track and budget.
We would have budgeted even if we had no debt, although we didn’t start budgeting until 2011.
There are many reasons people go into debt, but the big reason is that they are not budgeting and being mindful of their spending habits.
We started budgeting on an excel spreadsheet, and it continues to evolve each year.
Note: Our Canadian Budget Binder Spreadsheet is FREE to download and use with many other valuable free tools.
We reflected on our 2011 year and were confused about why our emergency savings would go up and down.
I mean, we stuck to the budget, but what was going on?
Stop Using Emergency Savings To Pay For Bills
I’ll tell you what was going on; we were skimming from our emergency savings to pay for stuff that wasn’t even an emergency.
Eventually, we realized that we weren’t saving money for expenses every 2, 3 or 4 months or even yearly.
At this point, our “projected expenses” account came to life as a part of our budget.
Projected expenses are upcoming bills or purchases that have to be paid, and we are aware of.
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.
Does that beg to question, without emergency savings, where are you getting the money if you do not save it?
Most people put debts they can’t handle on credit, but is this needed?
Not necessarily if a budget is used correctly, including projected expenses every year.
Let me show you how projected expenses helped us reduce financial stress.
Example Of Projected Expenses
Yearly we need to get licence plate stickers at $74 each, so $148 per year.
Monthly we save $12.33 all year in projected expenses for this expense.
We calculated and figured we would need about $160 a month for gas for our vehicles.
At the same time, we didn’t factor in maintenance costs, i.e., 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 two 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?
What is the actual number?
For us, we wanted an actual number, not one that we would have to estimate.
Projected Expenses equal less financial stress
We developed the projected expenses bank account with Simplii Financial because we never have to pay banking fees.
It’s just another savings account along with our high interest and chequing account.
Now we have three bank accounts with SImplii Financial to shuffle money into each month.
If this sounds time-consuming, think again, it’s easy; however, the organization prioritizes any budget.
Without financial organization, using a budget, you can make a right mess of your finances when banking.
Understandably this is why many people want their finances automated; however, errors can happen even then.
- Chequing Account
- High Interest Savings Account – Join Simplii Financial today!
- Savings Account (projected savings)
Considering All Future Expenses
I understand that things will ‘pop up,’ but that’s why it’s crucial to have a miscellaneous category and to think outside of the box when setting your projected expenses.
The worst-case scenario is that you save a bit more money than expected.
The good news is you aren’t pulling money from places you shouldn’t.
It also helps the first year build up the account and override expenses as they come in.
Financial Projections Are Simple Calculations
Let’s say that you have $2000 in the projected savings account, and your taxes are due quarterly.
The cost is $843; the money is ready and waiting to get used.
No stress having to worry about where the money will come from because you’ve saved it already.
You have to start somewhere, and it will take time to build up the projected expenses account.
Believing in something means you have the patience to see it come together.
You decide what categories you develop that are projected expenses and what are not.
Although we have more budget categories, at least we know that we are saving for future expenses.
Paying Property Taxes Example 2
Let’s look at our yearly house taxes, as that’s a fair bit of cash coming out of the bank account.
Example: We pay about $3200 a year for house taxes every three months, four times per year.
City taxes for our home is $800 quarterly which is a substantial amount of money all at once.
We used the money from our emergency savings which was a big no-no.
This is probably why many Canadians opt to pay city taxes with their mortgage payment.
Essentially the bank takes the money and does what you can do on your own.
Using emergency savings for property taxes is not an emergency and should not be treated as one.
We never even factored it into the budget, let alone saved for it.
Like most people might do, we went to the big account every time we needed to pay a bill.
Sadly the excitement of the emergency savings account growing had lost its appeal.
It’s comparable to stocks or investments increasing each month and not understanding why.
Budget Category- House Taxes
So, now we have a category titled house taxes, and we save around $278.00 monthly.
Our budget tells us how much money we need to transfer to our projected expenses bank account at month-end.
We move projected expenses all year, even if a bill payment is complete.
The overlapping of money saved is always needed especially moving into the following year.
Don’t worry, as you won’t lose sleep about interest loss from a high-interest savings account.
The interest earned in a bank is minimal at best compared to not paying a bill on time.
When a bill is due, we take the money from the projected expenses account.
We no longer worry about our high-interest savings account reducing as it’s ongoing.
It’s also nice to know that the money is set aside for these expenses when they come due.
Some people don’t have emergency savings, so the money has to come from somewhere to pay bills.
If you are disciplined, you could keep it in one account, but it’s easier to have separate accounts.
Consider Additional Budget Categories
Review your budget categories to see which expenses that come due but have no place in your budget.
You can review our monthly family budget updates 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 growing rather than using them.
Over the past four months, I’ve had fans testing our Free Canadian Budget Binder Spreadsheet.
Below is what one CBB reader shared with us…
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,
Tthe coordinator 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.
Thanks Mr.CBB for all your hard work.
Always Be One Step Ahead Of Your Budget
Although projected expenses are not for everyone, it works for us.
Having a clear financial picture ables us to reduce any stress we have about money.
Projected expenses help couples who budget together reduce money fights and money problems.
I like to think of budgeting as an open book and not a book with missing pages.
Discussion: How do you budget monthly for your projected expenses?
Leave me your comments below, and I’ll be happy to answer any questions you may have.
Full CBB Mini-Series Course
New: Below is our 10 Step Budgeting Series that you can click and read.
- How We Designed Our Budget Step 1– Gathering All the information
- How We Designed Our Budget Step 2– Budget Categories
- How We Designed Our Budget Step 3– Tracking Receipts
- How We Designed Our Budget Step 4- Note-taking
- How We Designed Our Budget Step 5– 5S Organization
- How We Designed Our Budget Step 6– Who Does What and When?
- How We Designed Our Budget Step 7– Balancing Your Budget
- How We Designed Our Budget Step 8– Knowing Your Savings
- How We Designed Our Budget Step 9– Reading Your Bills
- How We Designed Our Budget Step 10– Projected Expenses and 3 Foolproof Ways to save for One-time Expenses