New way to budget?

[humandraydel]

I had an interesting thought the other day. What if people actually had to pay for a year's worth of services all at once? For example, what if you had to pay for all 12 months of cable TV at once? What if you had to buy a year's supply of your "latte a day" at once? Would it change spending habits?

What if you set up your budget this way? Would it change anything?

[kork13]

I actually think it would be harder, or less useful for me to budget a year at a time. The numbers would get too large to be practical for my use. Example: I plan for $75/mo in gas & auto expenses. If I were to only say "Okay, I'll use $900/yr" on the same, it wouldn't give me a very good way to see if I'm over- or under-spending that mark.

Besides, I think I'd find it terribly depressing to look at my budget and see that I'm spending $25,000.00 a year (gotta love living overseas) on my apartment--so many zero's.... It's kind of like my feelings regarding budgetary politics--there are so many zero's that people have no real concept of how big a number $1,700,000,000,000 is, so it's easier to say "okay, I have this money to use... let's use it and see what happens."

You can have my monthly budget when you pry it from my cold, lifeless hard drive.

[disneysteve]

Interesting question. Most people couldn't manage to pay 2 months worth of bills at once so that would pose a pretty serious challenge. Those of us with savings and reserves would likely benefit because we could negotiate better deals. Some places already do this, like your insurance premiums are usually lower if you pay all at once instead of monthly or quarterly. I'd be willing to pay a bunch of things upfront if it saved me some money.

If this became required, I think it would certainly change spending habits, especially in the beginning until they learned to set money aside for annual payments. I also think seeing the total amount they are spending on certain things could convince them not to spend so much. Maybe that $2 coffee daily isn't bad but when they have to lay out $730 all at once, they might rethink the habit. Or $6,000 for cigarettes all at once. Not a bad idea.

[Frugal]

Well, it would certainly change things for me. I would buy far less.

[krantcents]

The first time would be very difficult! After that, you could allocate enough money monthly to have it when you need it. It would require a lot of discipline to actually keep it in a savings account for a year. If this were a realty, I would expect a discount.

[humandraydel]

Originally Posted by disneysteve

I also think seeing the total amount they are spending on certain things could convince them not to spend so much. Maybe that $2 coffee daily isn't bad but when they have to lay out $730 all at once, they might rethink the habit. Or $6,000 for cigarettes all at once. Not a bad idea.

This is exactly what I meant. $1200 cable bill? $1200 cell phone bill? Might make me change my mind!

[creditcardfree]

I think even if one doesn't actually spend this way now, that it is still useful to look at monthly expenditures as a yearly expense once in awhile. Simply to decide if $1200 per year for cable is worth the value you obtain from it. Would that $1200 per year be better spent elsewhere?

[junkstuff1]

This actually is part of how we (my wife and I) budget our money. I have a spreadsheet that lists monthly and annual costs. I also have a spreadsheet that lists each month's costs (I estimate a month's expenses, then enter actuals when the month is over).

This has done a lot of good for us, because it allows us to put things in perspective in the context of our goals. I started really doing this at the beginning of this year, and one huge impact it had on me was that I realized I had spent $2400 on bars and alcohol in 2010. I've cut this in half so far this year, because I'd much rather have that money go toward the downpayment we're planning on putting toward a house in a little over a year.

[Fizgig]

That's how I mentally think about my budget, even if the checks go out once a month not once a year. Thinking about a nasty $1200 bill is the one thing that's kept me from getting a shiny new iphone!

[DKAS]

Keeping track of yearly cost is part of how I was able to control my spending. First year out of college I would eat out on lunch just about everyday. Luckily, started tracking half way through the year just to see where the paycheck was going and looking at the bigger picture helped significantly.

[carolan]

Talk about thinking outside the box! I think this might work for those that have a decent income. I don't know how someone who lives paycheck to paycheck could make this work. Something to think about, thanks.

[wincrasher]

Well, it may all be wishful thinking if anything. Can't imagine a cell company or the cable company giving you a discount if you pay a year up front. They make more money and have far more customers with those "easy" monthly payments.

I'd also challenge you assertion about insurance being cheaper to pay all at once. Maybe that is the regular price, and people paying in installments are actually paying interest, thus more.

People should look at the total cost of ownership of things though - an iPhone costs about $2700 over the 2 year life of the contract. Looking at it that way, would they sell as many?

[dawnwes]

If companies would offer further savings by paying this way, I would love it. Hulu+ is considering doing something like this.....if you pay for 12 months at once you can get a discount.

However, you are right in that if I had pay up front for some services, I would not have those services anymore. For me, it might particularly include eating out. I think I figured I spent around $1,500 last year on eating out without including vacations. That is a LOT of $$.

Dawn