Most monthly budgets work fine for ten months of the year. Then the car insurance renewal, the annual software subscription, the dentist and the holiday gifts all show up, and the budget "fails". It didn't fail. It just never included those bills.
Step 1: List every non-monthly cost
Go through the last 12 months of bank and card statements and write down anything that isn't paid every month. Common ones:
- Car insurance, registration and servicing
- Home or renters insurance paid yearly
- Annual subscriptions (software, memberships, Amazon Prime, domain names)
- Medical and dental costs that aren't covered
- Birthdays, holidays and Christmas
- School costs, sports fees, uniforms
- Replacing glasses, phones, tyres
Most people find 8 to 15 of these. Add a rough amount next to each.
Step 2: Divide by the months until it's due
For each cost, take the amount and divide by the number of months until you need it. A $720 insurance renewal due in 8 months needs $90 a month. A $1,200 Christmas budget with 6 weeks to go is a different conversation, but next year it's $100 a month starting in January.
Step 3: Move that money out on payday
Add up the monthly amounts and treat the total like a bill. On payday, move it to a separate savings account (or one account with "pots" if your bank has them). This is usually called a sinking fund. The point is that the money is already gone from your spending account before you can spend it.
Step 4: Check it twice a year
Prices change. Every six months, compare each line with the latest real bill and adjust. Renewal quotes are also a good moment to shop around, since a lower quote shrinks the monthly amount too.
Free tools
- Sinking funds calculator: enter each expense and the months left, get the monthly total.
- Sinking funds spreadsheet for Excel or Google Sheets.
- Sinking funds for beginners, a longer guide with examples.
— Smart Budget Sheets