An example would be an annual membership to Costco whereby you budget 1/12th of the annual expense every month as a real expense, but you actually pay the bill only once per year.
- Creat a sub-account under your checking account that will act as a fund for this expense. Every month you’ll add 1/12th of the annual membership fee to this account from your primary checking account.
- On the first of the month, enter this transfer. Money will move from the checking account to the sub-account under the checking account. The total on the checking account will still reflect your bank balance.
- Continue this pattern throughout the year.
- Every month when you reconcile, you’ll want to include the sub-accounts for the primary checking account so the transfers from your checking to this fund can be reconciled.
- When you actually pay the bill, rather than paying it from your checking account, you’ll pay it from the sub-account applying it to the correct expense account. Your fund will decrease to zero (unless the membership value changed and you were off on your monthly transfers) and you’ll start the cycle again.
This method allows you to budget monthly so none of your annual expenses become “gotchas.”