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18 Aug 2004

A Household Budgeting Tip: Anticipatory Budgeting

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by Jesse Mecham

Using the title “Anticipatory Budgeting” has allowed me to join the ranks of financial advisors that have coined a new term. Well, I don’t know if this term is new – probably not – so I’m not going to do any coining. At any rate, here’s a solid household budgeting tip: anticipate your expenses.

Maybe I did coin the phrase “Rainy Day” used in the context of anticipatory budgeting. If I did, then I better start saying Rainy Day® (more on these later)! Okay, here’s the #1 household budgeting tip explained in detail:

Anticipatory Budgeting (AB) simply means you anticipate expenditures. I always use the car insurance example because (1) I have to pay it and (2) so does everybody else. My wife and I pay our car insurance premium each May and Novemeber. Some people might pay more frequently, others less.

Let’s pretend our premium is $300, just for the sake of easy calculation. When May rolls around, how many people have $300 just sitting around in their checking account? Very few. So my wife and I simply budget $50 per month ($300/6) into our “Car Insurance” category in the YNAB Budget. I said YNAB for a plug. A household budget can easily consist of pencil and paper – but it would be a bit more tedious.

On this site I call these horrible days of parting (with large sums of money) Rainy Days®.

The advantages to the AB tactic are many:

1. Money builds up in your checking account earnings HUGE amounts of interest!
2. Okay, sorry. Money does build up in your account, giving you HUGE amounts of comfort. Not too much interest.
3. You don’t have to charge the purchase, saving you an average of 18%.
4. Overdrafting risk: virtually non-existent. You’d have to spend all of these Rainy Day® amounts and any money you had already earned in the current month (per Rule One). Fat chance for an overdraft.

The disadvantages? Sorry, they must have skipped my mind.

So what type of purchases would need an AB approach? What are possible Rainy Days®? Well, depending on how you handle December, Christmas could be a full-on blizzard. We, as a society, are notorious for charging up our cards for Christmas because it’s not a part of the household budget. Budgeting money AB style each month will help make Christmas a lot merrier. Car insurance I mentioned, any private health insurance premiums you need to pay, school tuition, school books, vacation, car repairs and maintenance (you kind of have to estimate this one), subscriptions, membership dues, etc.

The list goes on. The YNAB Budget will help you with these Rainy Days®. And if you don’t feel like forking over any money for the program (you must be on a very tight budget – I commend you!) then use the AB approach with whatever type of household budgeting system you do use. It works. Heck, maybe you could AB yourself a copy of YNAB. If you want it in six months you need to put away about $4 a month.

Your Next Step

Remember, budgeting is not restrictive. You won’t be spending less, you’ll be spending right. You can do this! Today. Right now. What do you have to lose? Except all that debt and stress. (Ok, so kind of a lot.)

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