I have been doing something very similar to Dick Weaver - and his explaination about 6 yrs ago helped solidify what I was doing. I track monthly expenses separately from periodic expenses - easier for me. Let's focus on periodic expenses (Christmas gifts, car insurance, house insurance, etc). These are big hits at defined times - I know that March and September are car insurance months, May is house insurance, and December is Christmas month, etc. In this case, I add up my total periodic expenses and divide by 12 to come up with a monthly amount needed to save in order to have that savings cover all the periodic expenses for the year. I set that amount up to be automatically sent to a savings account each month. When one of the periodic expenses comes due, I transfer from savings to checking the amount of the bill and pay it. I know I have the $$ in savings to pay each and every periodic expense.
Words of warning - I work on a January to December basis, paid monthly. Say you have a $2000 car insurance bill due on February, but your monthly savings amount only averages $500. You obviously won't have $2000 (only $1000) in February. In a case like this, you may need to have some cash in savings the first year to cover this shortfall. The nice thing about this is that at the end of the year, you still have your same amount of savings - ready to fund your early shortfall needs - you saved for and spent all the $$ added to the account throughout the year. Alternately, try to move some of the large, early bills to later in the year if possible. Additionally, unless you don't have expenses at the end of the year, may mean you should shift your January to December basis to some other months - but in most cases Christmas costs and House Taxes take a good chunk of December periodic expenses.
A spreadsheet is great to track this. My initial concept came from a finance book called: "Uncommon Cents" by Lynn G Robbins - Been doing this since I read the book back in 1994. It has some nice charts that are easily transfered to a spreadsheet to give you the monthly expense layout and average along with a monthly expected balance in the savings account to ensure it doesn't go negative during the year.
- Ron