Financial Security Step 3: Save for Recurring Expenses

Save for recurring expenses to ease the stress of timing bill payments and paydays. Paying some bills annually can also save money on fees.

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If you’re new to the Financial Security Steps, start here: Welcome!

Once you have

1. tracked your expenses for the last 3 months,
2. saved your mini emergency fund, and
3. started saving for retirement,

you’re ready for Financial Security Step 3: save for monthly and annual expenses.

Why save for recurring expenses?

Save for recurring expenses to make your finances more streamlined and automated. You’ll need a second checking account for this process, but that should be easy to set up with your existing bank. One account is for bills, and the other is for everything else (including your income).

First, you’ll calculate how much of each paycheck you need to set aside for monthly and annual bills. Set up recurring automatic transfers from the “everything” account to the “bills” account for the day after each paycheck. Put as many bills as possible on auto-pay from the “bills” account… and you don’t have to worry about due dates or remembering to actually make the payment.

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1. Write down your recurring expenses

Use the Save for Recurring Expenses Worksheet to list the amount of all your recurring expenses.

In the Monthly Expenses column, list the amounts paid every month. In the Annual Expenses column, list the amounts paid for the year, even if it’s billed more often than that. For example, our auto insurance is billed every six months. We save $9/month by paying bi-annually rather than monthly, so I would record the total annual amount (the sum of the two payments).

If you pay a bill more than once per year but less than 12 times (every 6 months, quarterly, etc.), put it in the Annual Expenses column, using the yearly total.

Debt payments, other than the mortgage, is not included here yet. We’ll get to debt and debt payments in at a later step. Continue making debt payments though!

2. Do the math

Once you know how much you need each month or each year for recurring expenses, do the math to figure out how much to set aside per paycheck. Use this handy table to figure out how many paychecks you can expect per year.

Paid:	Paychecks per Year:
Single Income
monthly	12
twice per month	24
every two weeks	26
weekly	52
Dual Income
monthly + monthly	24
monthly + twice per month	36
monthly + every two weeks	38
monthly + weekly	64
twice per month + twice per month	48
twice per month + every two weeks	50
twice per month + weekly	76
every two weeks + every two weeks	52
every two weeks + weekly	78
weekly + weekly	104

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3. Evaluate your expenses

While you’re making the list of recurring expenses, I want you to really think about whether you NEED it. KonMari every expense (and go watch Tidying Up with Marie Kondo on Netflix).

Ask yourself:

• is it mandatory (like auto insurance)?
• is it a utility (water, power)?
• do you have a similar subscription (Netflix, Hulu, and Disney+)?
• do you use the membership (*cough* the gym *cough cough*)
• does it REALLY bring you joy or improve your life?
• can you get a lower rate?

If there are things that you don’t NEED and don’t bring you joy, GET RID OF THEM. Cancel subscriptions you don’t use. Change your auto insurance deductible. Negotiate your cell phone plan. Just make changes to your recurring expenses to free up some money each month.

BONUS TIP: ask your electric provider if they offer budget billing. If they do, consider signing up. They will evaluate the last 12 months of energy usage and bill you for the average. The amount is re-evaluated annually, so it may change, but you will receive a notice. I like this option because it makes it so easy to budget this category each month.

4. Set up your “bills” account

The easiest way to complete this step is to contact the bank you currently use and have them set up another, linked, checking account. With some banks, you can even do this yourself online.

Of course, you can use a different bank, but you want to make sure it is easily linked to your main checking account, where any direct deposits are made. It’s also helpful if the transfers are made quickly, which is a big benefit of using the same bank.

Get your free download, Save for Recurring Expenses Worksheet

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5. Fund your “bills” account

The goal here is to have a month’s worth of bills (the totals at the bottom of the worksheet) in the account at the beginning of the month. That means you need to find a way to save up that money. In Financial Security Step 2a: Save a Mini Emergency Fund, I give ideas for saving thousands quickly…

How to save:

• a tax refund
• a work bonus
• sell things
• reduce retirement contributions to employer match level
• work overtime or additional shifts
• get a second job
• work a side gig
• cut obvious expenses – eating out, subscriptions, and gifts

I know it’s not easy to come up with funds like this, but it will relieve so much stress later on. You won’t have to worry about paying your bills each month because (1) you’ve already got this month’s bills saved for and (2) you’ve got a plan for next month’s bills.

Transferring the money out of your main account automatically really makes it obvious how much you have left to spend on more optional things. I find it helpful to see that I have $300 per paycheck to cover groceries, gas, and random spending. Yes, that shows up in my budget on EveryDollar, but the black & white of my bank account really drives it home.

6. Use automatic transfers to save for recurring expenses & pay your bills

Now, set up automatic transfers from the main checking account to the “bills” account. The amount will be the Total Bills Per Check figure you calculated on the worksheet. Schedule the transfers for a day or two after your paychecks will be deposited.

Finally, set up automatic payments for as many bills as possible, using your new “bills” checking account. With a fully-funded “bills” account, you don’t have to worry about juggling the due dates of your cell phone bill and the electric bill. For credit cards, set the automatic payment to the minimum amount to avoid any issues.

Automating the process makes your life easier. Reducing the time you spend on routine financial things, and the stress that goes along with them, helps you stay engaged in your finances. When you’re not burned out on writing checks for bills every week, or scheduling online payments, you can focus on creating a good budget and spending intentionally.

I’ve used this method for years, and haven’t had a late payment or overdraft in just as long. This method works.

Get your free download, Save for Recurring Expenses Worksheet