As I prepare my 2023 budget, I question the same thing I have in the past. Should I budget expenses based on a specific date/month, or should I balance them over time? For example, I pay property taxes twice a year: in January and June. I’m striving to move closer to an envelope budget, but how do you account for huge peaks like this? I could instead average the total amount out over the entire year, but presumably if I’m trying to be ‘envelope’ I’d need to be budgeting for Jan 23’s payment starting in Jul of 22. How do most of you handle your budgeting, do you just average everything out over the year, do you make it as timely as possible, or does it vary depending on the category/item? What do you feel is working and what isn’t working?
I went in the direction of averaging out for the year and seeding the initial category savings to whatever amount is necessary to overcome any spikes that would overtake the accumulating monthly average (basically simulating as if I had always been setting aside monthly for the expense).
Hey Jospeh, Happy Holidays.
For me, and avid Envelope lover, I don’t think about how much I am spending in a given month. Instead, I think more about how much money I going to put in my envelope that month. For regular occurring items (groceries, clothes…) Any money in the envelope is free to spend. However, once it is gone it’s gone, until the next month. If there is any left over money I move it into investment or savings accounts. My goal is to fund next months spending envelopes with this / last months income
For larger items that are due periodically or annually I do average the amount I need to save and budget for that amount each month. For these accounts, I don’t allow the money to rollover.
Lastly, another difference is that I only fiund / fill my envelopes when i get the income in my account. Fro me this is twice a month. It is during these times that I make adjustments to my planned budget and adjust to the real world spending.
Good question. I don’t believe there is a single correct answer other than whatever works best for you.
I like to be accurate and put expenses in the months they occur.
Some very large expenses happen only one or two regular times a year (such as property taxes, as you mentioned.)
For some monthly bills, i know exactly what they will be every month and can make an estimate on possible inflation.
Other monthly expenses like groceries are variable each month, but i put in the same number for every month.
The advantage I see of doing it this way is I get an accurate Year-To-Lastest Month Budget vs Actual comparison.
I can also get an accurate Projected Future Expenses estimate for future months.
You might be able to combine an accrual method with this if you had a category for things like Reserve for Property Taxes which could happen monthly.