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Proper Budgeting – Plan Ahead for Major Cash Outflows Like Taxes and Vacation

April 1, 2010 · 3 comments

in Personal Finance

The goal of this post is to try and get you to think of ways to eliminate ‘surprises’ from your financial life.

In just over 2 weeks, a dreaded day for many Americans will arrive – Tax Day.

This got me thinking about how many people seem to be caught off guard when they owe a sizable amount in taxes.   However, for the most part, owing this money should not be overly shocking if you paid close attention to your tax results from the previous year and took appropriate action.  If you owe a lot this year, decrease your deductions and either consider making quarterly payments or putting some money away each month to cover the tax bill next year.  If you are getting a sizable refund, increase your deductions so you get more money in your paycheck each week.

Property taxes are another area that can also cause a huge hit on the pocketbook if you did not properly plan ahead of time (and you don’t use an escrow account).  If you are paying your property taxes twice a year, put money away each month into a savings account to cover that payment when it comes due.  Fun fact:  For 2008 and 2009, even those that do not Itemize their deductions can take a limited property tax deduction – $500 for single filers and $1000 for married filing jointly.  This is great for those who have paid off their mortgage and take the Standard deduction instead of Itemizing.

Another big annual expense can be vacations.  Traveling is a wonderful thing, if you plan accordingly.  However, many people put that vacation on a credit card and don’t give it another thought.  Then when the bill comes, there is not enough money to pay it all off.  If that is the case, this is my advice:  plan that vacation months and months in advance.  Try to estimate what that vacation will cost and put aside money each month.  If you don’t have enough money put aside when the time comes to take that vacation, then postpone the trip or scale it back.   Vacations are a totally optional event.  Sure, you have a great week of fun, but is it really worth struggling for months afterward to pay it all off?

The events mentioned above are just a few examples of events that happen annually that require planning ahead of time.  Each person has their own set of circumstances that need to be planned and budgeted for.  The goal of this article is to get each reader to not only think about their day-to-day expenses, but also those that occur infrequently.  An accurate budget needs to take ALL these items into account and smooth the costs over the entire year, as opposed to having to come up with huge lumps of money every few months that were not previously planned for.

Just as a side note- saving ahead of time to cover known, annual expenses does not replace the need for an emergency fund!

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{ 2 comments… read them below or add one }

Edris Asbell April 2, 2010 at 1:00 am

How often do you write your blogs? I enjoy them a lot 9 3 3

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Kris April 7, 2010 at 11:13 pm

I usually post Monday through Friday. Thanks for stopping by!

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