How to budget for one-time annual expenses?

martinrice · November 2020

I'm just setting up my first Quicken budget. I have lots of expenses that are just once or twice a year such as home insurance, auto insurance, city and county property taxes, etc. When filling in the budget, is the best practice to put the entire amount of what the payment will be in the month it's due or to divide it up by 12 and put that amount in each month?

Thanks.

Tom Young · November 2020

That's a pure accounting question and it depends entirely on how you define "best practices."

Personally I've never seen great value in a pure "GAAP" approach which involves incurring a cost, setting that up as a sort of prepaid and then amortizing that over 12 months, or accruing a liability in cases where the date of payment covers some past period,. The KISS principal I follow in these cases is to budget for the expense, in total, in the month it occurs. That also gives you good viability to future cash needs.

Tom Young · November 2020

That's a pure accounting question and it depends entirely on how you define "best practices."

Personally I've never seen great value in a pure "GAAP" approach which involves incurring a cost, setting that up as a sort of prepaid and then amortizing that over 12 months, or accruing a liability in cases where the date of payment covers some past period,. The KISS principal I follow in these cases is to budget for the expense, in total, in the month it occurs. That also gives you good viability to future cash needs.

martinrice · November 2020

Thanks, Tom Young. That's the way I was leaning and glad to have it confirmed by you.

jacobs · November 2020

Yes, as Tom says, you're not splitting your annual expenses evenly over 12 months, as a business would do, so there's no reason to do so in your budget. I'd enter an annual expense like home insurance in your budget in the month in which you pay it.

martinrice · November 2020

Totally agree. Thanks.

How to budget for one-time annual expenses?

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