While their parents enjoy rare time off by themselves, our two grandchildren, 8 and 5, will spend a week with my wife, Georgina, and me at Disney World. We've been looking forward for months to this fun week in April - and saving for it.
We'll also get the bills in April for our annual homeowners, windstorm, flood and umbrella liability insurance premiums, and our semi-annual auto insurance premium. Our estimated federal income tax payments and homeowners association dues also will come due in April. And I just figured that our 7-year-old car will need major scheduled maintenance work - in April, of course - before we drive to Disney World.
The inescapable conclusion: Our combined income from investments and freelance work won't come anywhere near matching our expenses for that month.
But we won't have to dip into our emergency cash reserves - this is not an emergency. We won't disturb retirement accounts, which are for retirement. And we won't go into credit card hock to pay for expenses we can easily anticipate.
Instead, we've been saving for these April expenses for months, as we do whenever we face above-average expenses down the road.
We all incur expenses that happen once or at most a few times a year (for example, some insurance premiums, summer vacations or holiday gifts). Even some regular expenses can spike at times. For example, our monthly electric bill runs from $60 to $70 higher in the Florida summer, when the air-conditioner is on more often.
To be prepared for these expenses, we must first anticipate them and then account for them in our household budgets. Since many of you have peppered me with questions about budgeting - a sign of the tough economic times - I'll explain the way Georgina and I do it.
Rather than a monthly or annual budget, we have a "rolling" 12-month budget that projects income and expenses over the following 12 months without regard to calendar year.
For example, our budget covers January through December of 2009 now. But by the end of January, we'll be looking at the period from February 2009 through January 2010.
Whenever we notice a crush of expenses coming up, such as in April, we start setting money aside as much as a year in advance. For example, if we know we'll have to spend an extra $3,000 one month, we start putting away $250 a month a year earlier.
Think of it as a "layaway" plan, except we're paying ourselves. We deposit the money in an interest-paying federally insured online savings account and transfer it to our checking account when the bills finally arrive.