Comments on: Why You Should Create an Accrual Account and How to Do It

By: Ryan

Ryan — Tue, 29 Dec 2009 15:33:08 +0000

Marcus, You could break up your total expected expenses into 11 months, then contribute that much each month, taking what you need from the other accounts first, then repaying it after you make the purchase. For example, you will need $1,600 for these expenses, which comes to $145 per month. That won’t quite work for the March expense if you only count Jan/;Feb contributions, but depending on when in March the wedding is, you may have enough. If not, you may be able to contribute a little more than $145 per month, just to get your fund seeded for earlier expenses. After you have the expense, you just funnel new contributions to the other savings so you are covered for those expenses.

By: Marcus

Marcus — Tue, 29 Dec 2009 08:35:23 +0000

This is a great system and Ideal if you have enough income to cover all of your expenditures for all months. However; it gets complicated with you have to save for several items and the total is larger than you can save in any one month. For example.

Ok, Its Jan 1, 2010

Wedding to attend in March – 400 = (400/2 = 200)
New TV in July – 600 (600/6 = 100)
Xmas in Dec – 600 (600/11 = 55)
———
So for Jan & Feb i should save 355.

However, I can’t do that much.

Does anyone have a system (excel pref) to track and visualize this.

*I know I know its just a matter of setting up a timeline, but I love excel and am obcessed with tracking stuff like this.

I would love to be able to plan my entire year out and see it fit and come under budget.

By: NatalieMac

NatalieMac — Sat, 05 Dec 2009 18:17:22 +0000

I’ve been using a system like this for any irregular expenses for about two years now, and it really works well.

I set up a monthly budget, but quickly realized that there were a lot of expenses that didn’t fit neatly into a monthly budget – car insurance every six months, rental insurance one a year, car registration once a year, birthday gifts sort of randomly throughout the year, holiday shopping, vacations, etc.

I created an annual budget for all the non-monthly expenses, divided the total by 12, and then put that amount away in a savings account each month. Now, when I have to do my holiday shopping or pay my car insurance, the money is always there and I don’t have to worry about being short one month because of an irregular expense.

By: Len Penzo

Len Penzo — Fri, 04 Dec 2009 02:21:19 +0000

The Honeybee and I use this method too for our family’s personal finances. In fact, it’s a tried and true method that ensures financial discipline. We actually apply this to ensure we have enough money to meet all of the goals in our strategic (long-term, as in longer than one-year) spending plan.

Great post!

Len
Len Penzo dot Com

By: Neal A. Deutsch, CFP

Neal A. Deutsch, CFP — Thu, 03 Dec 2009 19:29:39 +0000

In a simplified way, an accrual account is similar to your grandparents or parent’s cookie jar or envelope system. In the “old day” when the breadwinner came homewith the weekly paycheck (yes, they got paid weekely, not bi-weekly!) Mom would usually split up the cash into the respective envelopes (rent, insurance, utilities, food, etc) and retrieve it when the particular bill was due. Fancy that- no computers or online banking.

By: Financial Samurai

Financial Samurai — Thu, 03 Dec 2009 18:14:34 +0000

I like this idea. However, is this an idea for those who don’t have the discipline to budget? Actually, isn’t this another word for “budget”?

Definitely seems like the right thing to do for most people.

By: Kacie

Kacie — Thu, 03 Dec 2009 17:42:27 +0000

I do this for our insurance policies and it makes saving up for the annual payments painless!

By: traineeinvestor

traineeinvestor — Thu, 03 Dec 2009 08:44:38 +0000

I use accruals for major items like tax (we have no PAYE here) and it avoids the nasty surprise of finding myself short of cash when these items come due.

It takes me about two minutes to update the accrual numbers in my spreadsheet each month.