Years ago, when we first got diligent about knowing how we were spending our money, we encountered a problem.  As most would do, we had expanded our spending to match our income.  Meaning, if we knew we had $1,000 coming to us, we planned for that much in spending.  Most of the time, we had the money “spent” before we had it in the bank.

All was fine and dandy until those special occasions when it was necessary to spend money on something.  The problem was, we had not accounted for that.  We needed a way to save for something before the expense actually showed up.

So here’s the word….  Accrual.  It is an accounting term that in it’s simplest form means to save up.  In our organization, if we are concerned that the price of gasoline might go up that year, we make an accrual for a certain amount of money, to help us pay the overage in the future.  It’s the same on a personal level.

Here’s what I mean:  Each year when my wife and I sit down to plan our budget, we consider everything we might need to buy.  We assign it an amount.  Once we determine how much it will cost, we divide that number out by how many months we have before the expense is necessary.  Then we begin accruing that amount.

We accrue for many items throughout the year, such as:

1. Christmas

I don’t just mean the gifts.  Don’t forget the tree, decoration, cookies, cards, etc.  Do you know how much you spent on “Christmas” last year?

2. Various Expenses

There are many expenses that come up throughout the year, but I don’t know when.  Things like car tires, registration, lawn maintenance, pest control, or even a plumber every once in a while. (Like recently when our three year old flushed a Lego.)

3. HOA Dues

I know how much it will be a year ahead of time.  I might as well save up for it.

4. General Giving

We want to be giving people.  That is important to us.  For this reason, we set aside money each month that when we meet someone in need, we can bless their socks off.  This one is really fun!

5. Car

We will both need a different car at some point.  So we are saving each month for it.

6. Car insurance

Same as above.  I know when it is due, and how much it will be.  I might as well save now for it.

7. Vacation

Don’t be tempted to charge that thing.  Pay in cash.  It is much more relaxing.

8. Medical

I know that it is inevitable that we will go to the doctor, especially with 4 kids.  We set money aside each month for it.

9. Clothing

Save it up.  Buy during the sales.

10. Gifts

If all we have saved when someone’s birthday comes around is a few dollars, then a card will have to do.  I know people get older every year, and they want me to reward them for it.  I might as well save.

You might be wondering what the difference is in accruing and a savings account.  For us, we have a savings account, but we only use it for emergencies.  We leave most of our accruals in our checking account, and use them as necessary.

It takes a lot of the stress off when something comes up that we didn’t expect.  We feel on top of our finances, and that they aren’t on top of us.

Do you accrue?  If not, what is your system?