TCFBO #034: Budgeting Principle #3

Read Time: 1.5 minutes

If you’ve read Budgeting Principles #1 and #2, you’ll know that budgeting is as much about mindset as it is a practical way to manage your money.

(If you missed the articles, you can read them here and here).

And if you’ve been reading our stuff for a while, you’ll realise that we’re big fans of chunking down projects into small, even tiny steps.

Well, when it comes to budgeting for large expenses, we do exactly the same thing.

We chunk them down into smaller amounts.

And that’s…

Budgeting Principle #3

“Chunk Down Your Large Expenses”

Think about those large bills that come round once year.

Insurance premiums.

Annual subscriptions.

A hefty tax bill.

If we’re not on top things, large expenses like this can creep up and give our cashflow a good kicking.

But if we break large expenses down into manageable monthly amounts, it’s like turning a mountain into a series of small hills.

So start off by listing all your annual expenses.

Then simply divide each annual expense figure by twelve.

That’s how much to put aside each month so that when the bill comes in you have the funds waiting to cover it.

Now, if this is the first time you’ve chunked down your annual expenses, the chances are that you’re going to have annual bills due sooner than in twelve months’ time.

So let’s say your next large bill is due in four months and you want to make sure you’re going to have the money to pay for it in full by then.

Simply take the total amount you expect the bill to be and divide it by four.

That’s how much to put aside for the next four months.

Once this year’s bill has been paid, you’ll be able to reduce the monthly amount you set aside because you’ll be splitting the savings for next year’s bill across twelve months.

Although this may seem simple, we’ve found there are two big payoffs by managing a budget in this way.

First, it smooths out your cashflow.

You’re not hit with a huge expense all in one go, which can really throw a spanner in your monthly finances if you’re not paying attention.

Even if the bill comes in larger than expected, you’ll have a fair chunk of change to cover most of it.

Second, it gives you peace of mind.

Knowing these expenses are covered in advance takes a load off your mind.

And this allows you to focus on other more important aspects of your business…the things that will move you and your business forward faster.

And you don’t have to just split your annual bills into monthly savings.

You can also split large, more irregular expenses too, such as replacing computer equipment or vehicles.

Just remember, consistency is the key.

Stick with it, and you should find yourself on a firmer financial footing.

Let us know how you get on and we’ll see you next week.

Paul & Philly 

P.S. Missed any of our previous articles? Access the archive here. It’s full of tools and tips to help you stay focused on building a business you love.

Whenever you’re ready, there are three ways we can help you:

1. Grab a copy of Paul’s book “Backwards Planning - A Simple Method to Move You and Your Business Forward” to discover how to reverse engineer a life and business you truly love.

2. Book a facilitated “Life Vision Session” to start creating a life and business that are fully aligned with your heart’s desires. We’ll arrange a pre-session call with you to say “Hi”, explain how the Life Vision Session works and answer any questions you may have.

3. Apply to join “The Clear Focus Business Academy” to ensure your business is the most effective it can be at providing the money and lifestyle you desire. Simply drop us an email or contact us here to tell us you’re interested and we’ll send you more info.