Charting expenses -- method for recording year-long expenses paid at one time

[pigpen]

Hello,

I've just been recording our expenses in detail for about 6 months now, and I wanted to get some input on how people record expenses such as taxes or insurance that are paid in one lump sum but really are "used" throughout the year.

For example, we paid off our house back in November, and for the first time we'll be paying our insurance premium directly to the insurance company this spring rather than through our mortgage escrow account. Same for property taxes. I'll probably pay both of these when due in a lump sum. I also just finished my 2014 tax return and had to pay the IRS for some freelance work I did throughout 2014 that didn't have taxes taken out.

So, does it make the most sense to record these types of expenditures as, for example, $1200, homeowner's insurance, May 2015, or to record an expenditure of $100 for each month of 2015?

Any thoughts?

Thanks.
pigpen

[slugline]

I record the expenses just like they happen at my financial institutions.

My home insurance and taxes are paid from an escrow account. In my personal finance software, I have actually set up an account to mirror the escrow activity, including the once-per-year withdrawals for taxes and insurance. If I didn't use escrow I'm pretty sure I'd still enter those as once-per-year too.

[nobody123]

I take the annual cost and divide it by the 24 paychecks I get per year and allocate that amount each pay into a column into my Excel budget.  Essentially I have my own escrow account as a subset of my savings account balance.  When I have to pay a bill, I decrement the amount in Excel and transfer the cash to my checking account to pay the bill.  The transaction in my check register is whatever the check is written for.

When a bill is paid, I review how much I am allocating per paycheck for that for the next year and adjust my allocation as necessary.  I usually assume a 5% price increase when I have to pay it the next year.

[BooksAreNerdy]

YNAB is a perfect tool for this. You budget in category amounts, and it rolls over the category balance until you need to spend it.

YNAB has great support and is an awesome tool. It does take a little time to get used to spending based on the budget vs your acct balance.

[aj_yooper]

A paper budget, spreadsheet budget, or YNAB would do it for you.  I do YNAB and love its simplicity. 

[Eric]

It doesn't matter.  The point of keeping track of your spending is twofold.

1) Examine where your money goes to make sure you're spending efficiently
2) Have a record of your spending over multiple years so that you know how much spending you'll need to cover in FIRE

Either way, you're coming out the same no matter how you record it.  The money was spent as efficiently as possible and you know how much you'll have to cover in the future.

[kpd905]

I just entire the cost into my spreadsheet in the month I pay it. At the end of the year I figure out my monthly averages.

[MDM]

It doesn't matter.  The point of keeping track of your spending is twofold.

1) Examine where your money goes to make sure you're spending efficiently
2) Have a record of your spending over multiple years so that you know how much spending you'll need to cover in FIRE

Either way, you're coming out the same no matter how you record it.  The money was spent as efficiently as possible and you know how much you'll have to cover in the future.

^This...unless you have something else in mind...?

What, to you, are the pros and cons of the two approaches?

[pigpen]

Dividing it up among all the months of the year seems to give a more accurate representation of real monthly expenses. However, recording the entire expenditure in the month you wrote the check seems like a better measure of actual cash flow, which I guess is probably more important. And as a couple people have pointed out, it's the year-to-year that's most important, which either method captures just as well.

Anyway, thanks everyone for helping me think through it.

[deborah]

I have a spreadsheet with a separate sheet for expected yearly expenses and when they will occur. These expenses are automatically added to my normal sheet in a separate column. This means they don't distort the monthly expenditure, and I understand my cash flow. Many of them occur at this time of the year, so cash flow can be important now.