Estimated reading time: 8 minutes
What are Projected Expenses? These are future expenses that need to be paid at some point in the year.
Today, let’s discuss projected expenses 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.
Paying down debt and working towards your retirement goals simultaneously is possible.
New: Free Yearly Projected Expense Tracker Sheet- Budget Binder Printable
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.
People go into debt for many reasons, but the big reason is that they are not budgeting and being mindful of their spending habits.
We started budgeting on an Excel spreadsheet, which continues to evolve yearly.
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.
We stuck to the budget, but what was going on?
Stop Using Emergency Savings To Pay For Bills
I’ll tell you what was happening; we were skimming from our emergency savings to pay for stuff that wasn’t an emergency.
Eventually, we realized 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 them.
Effectively, these are the numbers many people forget when budgeting but are crucial to overall budgeting success.
The money has to come from somewhere to pay for these bills.
Does that beg the question, without emergency savings, where are you getting the money if you do not save it?
Related: 3 Foolproof Ways To Save for One-Time Expenses
Most people put debts they can’t handle on credit, but is this needed?
Not necessarily if a budget is used correctly, including yearly projected expenses.
Let me show you how projected expenses helped us reduce financial stress.
Example Of Projected Expenses
We need to get license plate stickers at $74 each year, 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, 5-year license renewal, etc.
So, where does this money come from if we are not budgeting for it?
It comes from emergency savings, but are these expenses really what we call an emergency?
Not in our books; they are not, at least not any longer.
These are everyday expenses throughout the year, although not everyone has emergency money.
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 and 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 and 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, it’s easy; however, the organization prioritizes any budget.
Without financial organization, using a budget, you can make the right mess of your finances when banking.
This is why many people want their finances automated; errors can happen even then.
- Chequing Account
- High-Interest Savings Account – Join Simplii Financial today!
- Savings Account (projected savings)
Considering All Future Expenses
We needed to think of everything we knew we would have to pay for each year when designing our budget and budget categories.
I understand that things will ‘pop up,’ but it’s crucial to have a miscellaneous category and think outside the box when setting your projected expenses.
Related: How To Document Miscellaneous Expenses Into Your Monthly Budget
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
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 be used.
No stress worrying about where the money will come from because you’ve saved it already.
You must start somewhere, and building up the projected expenses account will take time.
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 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 from the bank account.
Example: We pay about $3200 yearly for house taxes every three months, four times yearly.
City taxes for our home is $800 quarterly, which is substantial.
We used the money from our emergency savings, which was a big no-no.
This is probably why many Canadians 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.
As 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 growth 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 must transfer to our projected expenses bank account at month’s end.
We move projected expenses yearly, even if a bill payment is complete.
The overlapping of money saved is always needed, especially in the following year.
Don’t worry; 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 are 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.
Knowing the money is there and seeing our emergency savings growing rather than using them is the best feeling.
Reader Mailbag
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…
Hi Mr.CBB,
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.
Related: Mr. CBB helped our family budget get back on track
Always Be One Step Ahead Of Your Budget
Although projected expenses are not for everyone, they works for us.
Having a clear financial picture enables us to reduce our stress about money.
Projected costs help couples who budget together reduce money fights and money problems.
I like to think of budgeting as an open book, not a book with missing pages.
Discussion: How do you budget monthly for your projected expenses?
Leave me your comments below, and I’ll happily answer any questions.
Mr. CBB
Full CBB Mini-Series Course
New: Below is our 10-Step Budgeting Series. You can click and read it.
- 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
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very good information – still trying to set up a budget so I think I will have to download some of your tools – having a hard time getting started
If I can be of any help just send me an email… lots to learn but it is easy and worth it!
I am really looking forward to when you share your spreadsheet, I am just using something I wrote up myself for now.
I would like to know more about the projected expenses as well. Just set up a seperate account, and transfer money each month?
Yes every month we move the money to the savings account until we have to pay that bill. Once the bill comes in we take the money fro that account. BUT you have to remember that we are dividing the cost over 12 months so you have to pay it in for 12 months even if you pay the bill. That’s where the overlap in money comes so there is money to pay for the other projected expenses and so on. The best part is knowing we have the money saved… ah.
We plan this way too. ING doesn’t charge us service charges or fees for opening an account so we actually have a few “planned expenditure” accounts for specific items as well as one general account. Right now our specific accounts are aimed at new tires, replacing my computer, and some upcoming dental expenses. Our general account gets an amount each month calculated to cover things like property tax, auto maintenance, home repairs…
So many people forget to do this and when the bill comes they turn to their savings or other credit means. We don’t need to do this if we all plan properly with our budget. If you know the bill is coming you must save for it. I’m sure you agree it’s a great feeling knowing the money is saved but it’s not an emergency and not depleting that account. Cheers Mr.CBB
Some great and useful information. I’ve been trying to do the same thing as I have been following your budgeting series and seen you mention it before. For those just starting a budget I think it is a great thing to do. My only problem is that there are always expenses that come up that I have forgotten to include. Once I realize I have forgotten them, I adjust my budget to include them for the future so come next year I should be in good shape. As for the other comment you made, I myself have no debt but I still created and follow my budget so that I can stay debt free as I know the circumstances under which I live today will not be like that forever and I need to be prepared for when changes come. I am also looking forward to the CBB spreadsheet as like Wendy I am also currently using one I made up on my own. As always, thanks Mr. CBB
Funny you mention that as we always come across something same as you and add it into the budget. You can see as I post my budget updates monthly something new is added every month or adjusted up until last month I believe. That’s great that we recognize this and like you said by next year we should be all sorted. The best feeling is budgeting it all in even the small stuff so when the bill comes.. bam, just take it from the projected expenses account…Budget coming soon and for the few that have tested it, they love it but it’s been updated since they got it! Cheers Mr.CBB
We’re starting to work towards a budget, or at least the hubby is,I’ve been trying to keep things in some sort of order for a while. He had a shock the other day when he asked me to go through the checkbook and figure out what we spend on things like groceries. I sat down with book and paper and wrote down everything and added it up. A few of those enters stopped him short….. he forgot about things like the plate tag for the truck…..repairs and maintenance, accounts fees, investorline, and such…..The other thing I could suggest here would be to see how many of the projected costs could be switched to a monthly billing? We pay our taxes, truck insurance and house insurance monthly….. the option is there for the asking….would you consider that????
I appreciate articles like this because it gives you an idea of how or where you can get started…makes it seem easier and like you will succeed 🙂 thanks for this.
I have never had a budget, but for the last couple of years while shopping, had to justify a purchase in my mind prior to purchasing. If it wasn’t really necessary, I don’t buy it (no matter what the good deal on it is). I find if you don’t really go out shopping, it is very hard to spend money on unnecessary items……make a list and stick to it! (oh and of course…..use coupons)
I think what you’ve done makes perfect sense (to create projected expenses, rather than use emergency savings). It does help when things come up that you don’t pay for often like your license renewal or your passport (just came up with that one as Ken is getting his next week lol) We now have a projected expenses account thanks to you and it really makes a big difference. I also feel peace of mind knowing the money is there when I need it. I have several accounts with RBC so I just use chequing for day to day banking and savings for projected savings, TFSA for emergency savings. I also have a few ING accounts I hope to start up again soon to save for finishing my basement and another for the next baby. I don’t use projected savings as much as Mr CBB as I try to pay all my bills bi-weekly or monthly (I pay my property taxes monthly and get Nov and Dec off, I pay Hydro monthly on equal billing, Domestic Gas monthy on equal billing). I just find it easier for me to budget and keep track that way. It feels like such a big chunk the other way (I guess its kind of psychological too lol). Using Mr CBB’s budget, including a projected savings account has made a HUGE difference for us financially. I don’t think there’s enough praise I can give to it, or enough “thanks” to give Mr CBB for all he’s done for me and my family. When Mr CBB releases his spreadsheet I recommend EVERYONE use it! Use his tools, follow his budgeting series…because it works!!!! THANK YOU Mr CBB!!! 🙂
All this and I only have to give you a pan of brownies hahaha… thanks darlin.. that was very sweet of you to say…. Disclaimer: no she is not a paid commenter lol..she is one of the biggest fans here at the blog, Facebook and now Twitter!!! Keep at it … you inspire me like everyone else… 🙂 Mr.CBB
Maybe I should start holding out for some brownies!! Darn! Why did I already send you that blog post!!! *stupid me* lol
Ah.. you win some you lose some.. never say never I’m sure a neat surprise will come your way one day… maybe not riches.. but just something to make you giggle.
This is great; I made up a system for dealing with projected expenses this year too, because I couldn’t find much online about “cash flow budgeting” at the household level:
http://wp.me/p25oSj-up
I think we are like-minded!
Yes I just had a peak and left a comment. It is precisely what we do. Thanks for dropping in come join me on twitter and Facebook… Cheers Mr.CBB
Great post! I am definitely liking back to this one; a very interesting and useful take on the budget..
I learned the most from the Projected Expenses blog post. These were expenses that I had never thought about saving for all year round before this…..Here is what I commented previously on this post and it explains all of my feelings :-)……………………I think what you’ve done makes perfect sense (to create projected expenses, rather than use emergency savings). It does help when things come up that you don’t pay for often like your license renewal or your passport (just came up with that one as Ken is getting his next week lol) We now have a projected expenses account thanks to you and it really makes a big difference. I also feel peace of mind knowing the money is there when I need it. I have several accounts with RBC so I just use chequing for day to day banking and savings for projected savings, TFSA for emergency savings. I also have a few ING accounts I hope to start up again soon to save for finishing my basement and another for the next baby. I don’t use projected savings as much as Mr CBB as I try to pay all my bills bi-weekly or monthly (I pay my property taxes monthly and get Nov and Dec off, I pay Hydro monthly on equal billing, Domestic Gas monthy on equal billing). I just find it easier for me to budget and keep track that way. It feels like such a big chunk the other way (I guess its kind of psychological too lol). Using Mr CBB’s budget, including a projected savings account has made a HUGE difference for us financially. I don’t think there’s enough praise I can give to it, or enough “thanks” to give Mr CBB for all he’s done for me and my family. When Mr CBB releases his spreadsheet I recommend EVERYONE use it! Use his tools, follow his budgeting series…because it works!!!! THANK YOU Mr CBB!!!
I almost had to go make a tea to read all of this again lol…. thanks for sharing Jen and I’m happy to hear you understand them now. Too often people think they have extra money left in the budget and allocate for other things when in reality all these little projected expenses creep up and there is no money to cover them. It’s very important. Cheers Jen