Wednesday, February 02, 2011

Reviewing accruals

Like many people I make an accrual each month for expenses which are incurred at irregular intervals. This avoids wild swings in the budget in months were substantial payments fall due. It also ensures that I keep enough cash on hand.

Currently I have accruals for:

1. luxuries - usually some over-priced and over-hyped Bordeaux, but I also took my iPad from this accrual. Since this is wholly discretionary, I can say that the accrual is accurate - right up to the point where I overspend;

2. travel/holidays - this is a significant cost item. I have probably under provided for this and will add to this provision this month and slightly increase the monthly accrual going forward;

3. taxes - a necessary evil and the largest accrual by a considerable margin. After going through my estimated tax liability for 2010, I concluded that I have significantly over provided for my taxes;

4. home renovation project - our home will need redecoration at some stage and I started setting aside some money each month in 2009. The kitchen and bathrooms are now 11 years old and the last time it was painted was in 2005. It is likely that we will have to move into a serviced apartment for a couple of months while it is done. Whether this is over provided or under provided for will depend on when the renovation takes place. If this year, there will be a significant shortfall.

Accordingly, I will transfer some of the excess tax accrual to the travel accrual and the home renovation accrual and the balance of the excess is now available for investment - time to go shopping.

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