As you start the new year, there are a few financial details you need to keep an eye out and huge expenses are one of them.
It is tough to hear these two words when you are just starting out the year. But the sooner you focus on them and be able to plan for them, the better. If you choose to sweep them under the rug because you just don’t feel like working out the details especially when it involves large payments, this can be a recipe for disaster.
The time could come when payments are due but you do not have an idea where you can get the money to pay for them. Plus the fact that even if you ignore these big expenses for the year, they are still at the back of your mind. You get to think about them every now and then. And the absence of a concrete plan only brings you stress.
These are just a few of the reasons why it makes sense to take on and start planning for huge expenses at the start of the year. It does not sound like a great activity to do but it can help save you from huge financial headaches during the year. You no longer have to worry about it day in and day out because you already have a plan.
It can also help you focus on a lot more areas of your finances than just making big payments for the year. Once you get these out of the way, you can start to plan for other things like career advancement, business growth, family trips, and others. Add the fact that it is a lot better to plan for these things without being bothered by the thought of huge payments due in the year.
Here are some of them worth looking into:
Credit card payments from holiday expenses
One of the huge expenses you have for the year could be your credit card payments. There is also a good chance that a good part of the payments are Christmas holiday expenses you incurred last year. And if you still have a sizable balance on the card prior to your holiday expenses, your current statement might be a little overwhelming.
This is not an ideal start for the year when it comes to your finances but you can work out the payments for your credit card expenses. It is usually one of the most challenging payments to make but it does not mean it is impossible. Although it will take discipline and commitment, you can pay off your cards in a number of ways.
The most straightforward approach is to pay off the entire balance on the card if you have the funds for it. This saves you fees and interest payments for the months to come. If that is not possible, you can make the minimum monthly payments. Just make sure you pay them on time and pay extra when you can. This shortens the payment period on the card. If you have multiple credit card payments, explore debt consolidation through a 0% card. This helps save you money and you get to focus on repaying only one lender.
Tax payments are also one of the huge expenses you need to keep in mind for the year. If you are employed, you do not have to worry too much about filing and payment. IRS mentioned employers have a responsibility to pay and fill up forms. This is normally done by your company with tax payments withheld every month from your paycheck. You just see it reflected in your pay slip and if there is an overpayment, you get a tax refund.
But if you are filing and paying for your own taxes, you need to make sure that you are doing it correctly. It helps to work with a certified accountant or tax specialist to make sure that you are making the right payments. Though it is not good to overpay when it comes to taxes, this is better rather than shortchanging the IRS
If you do this on your own, you now have a pretty good idea of how much it should be every year. You can simply deduct that amount from your earnings every month and set it aside. The struggle is making sure you do not dip into it every now and then for unnecessary expenses. Be on the lookout for instances where you try to convince yourself it is okay to get a small amount because tax payments are not for a few months anyway. Too much of this and you won’t have enough to pay for your taxes.
When you talk about huge expenses, college might always be part of the conversation. There is no doubt that the cost of attendance for your children’s college is a huge amount. US News shares average student loan in 2021 is around $30,000. This is one of the reasons why a 529 plan was put together by the government to help families save up for college. These tax-free savings can be an enormous shot in the arm when you are already stressing about the huge payments for college.
It might even be you when you choose to take up post-graduate studies. In a bid to grow in your chosen career or to simply advance in your profession, taking up further education seems to be a good choice. But the cost is also something you need to weigh carefully. It is tough to balance career growth when it means being in debt for years to come.
But do not worry because you can always save up for it. Granted that it might not be enough to pay for the whole ride but at least, you get to lower what you have to borrow in student loans. The idea is to always make sure you have a way to pay it back. This helps you focus on what you can afford to borrow and be more resilient about where you can get scholarships or grants. These are a great help in making sure your student loan payments are as low as they can get.
House payments are usually one of the biggest expenses for American families. It can be either a monthly mortgage payment or rent you pay to your landlord. Whichever is the case, is it important that you secure your monthly house payments. This is crucial because missing payments can lead to bigger problems down the line.
If you miss rent, this gives your landlord a valid reason to ask you to leave the property. Especially if you keep missing several months of payment. The same thing can happen with your mortgage – failure to make payments can force the bank to ask you to leave the property. The sad news is that you lose equity on all those years you have paid for the house and even the down payment.
This is why you always need to set aside this amount from your paycheck every month. It is not too often that your rent or mortgage payments increase. Once you get paid, take out the house payments so you do not worry about it later on. And then make the payments so you do not forget about it. If you can make advance payments, the better so you are not stressing too much about it in the next few months.
The same idea applies to car payments, if you miss sending out the check to your lender, they can take it from you and repossess the car. Their goal is to sell it to someone else who can make the payments or at the very least, sell it just enough so they get back the capital amount you borrowed for the car. So it is one of those huge expenses every month you also have to focus on.
The goal is simple – set aside the amount you need for it every month. Deduct it already at the beginning and not at the end. Doing this helps ensure that you have enough to make the payments every month. If you choose to just do it after all the other expenses have been paid, there is a good chance that you might not have enough to pay for it.
If you are having a difficult time making car payments, it might help to look for ways to save on it. Remember, the monthly car payments do not change but you might be able to lower other costs. You could save on gas if biking to work on certain days is manageable. What if you can find other insurance companies who can offer lower premium payments on the car? All of these can add up and help you save enough to help make car payments every month.
It might not seem like a lot but when you get the chance to take a look at your food budget, you might be surprised by the total amount you spend on it. And if you also love ordering takeout or delivery, then your food expenses would likely go up as well. Not to mention frequently dining out could also bring your food budget up.
To help you manage this area of your expenses, you need to make sure you plan your meals ahead of time. By doing this, you have a pretty good idea of what you need to buy early on and what you can buy in bulk. This also gives you the perfect opportunity to cook in batches over the weekend so your meals throughout the week are already prepared.
The goal is to make sure you have your meals covered and ready so you are not tempted to order takeout or even eat out on ordinary days. Of course, there will be family events that call for special meals but in your day-to-day needs, staying on top of your food budget is important.
Emergency Fund Payments
Your emergency fund is not one of the huge expenses you have to worry about for the year. But it is one of the funds you need to keep an eye out for. If you remember what happened at the height of the pandemic, these emergency funds served as a lifeline for a lot of people. After they were put on furlough or let go at work, they instantly had to rely on whatever amount they had in their emergency money.
This means that if you get to save for future needs, it allows you to cover your expenses. This will help you get back on track. That being said, you can try re-classifying your emergency fund savings as an expense. It simply means that you have to put in or “pay” that account every month. If you can designate an account specifically for emergency use, then you put money there and forget about it.
Much like how you would approach payment for lenders, once you send it out, it’s no longer in your hands. Taking the same approach might help you increase your savings over time. It is tough to not think about it especially as the funds are just there. But if you can control your emotions by checking the fund and using it for other things, then you can build it up over time.
There are a lot of huge expenses you need to keep an eye out for as the new year starts. The past few years have been some of the most challenging. And this is a great chance to start getting back up on your feet. It would be challenging to try and do everything the first few months so space out your recovery.