One of the things that used to really mess up my budget was irregular expenses. By irregular expenses I mean things that don’t happen every month. Monthly expenses are easy to budget for. The mortgage hits the same day each month and is the same amount. Even things like utility bills aren’t really that hard. They may vary a bit from month to month but as I practice doing my budget over time I can predict reasonably well what for example my gas bill will be in the summer vs. the winter. I might be off a little in my guess but it won’t be a budget buster.
On the other hand irregular expenses really used to put me in a bind. There are two kinds of irregular expenses, planned and unplanned. Unplanned irregular expenses are things like the timing belt breaks on the car or maybe the mower kicks up a rock and breaks a window. These types of expenses can be covered in two ways. First, taking these as an example you should have an item in your budget for auto or home repairs so it could be covered by the funds in those categories. Secondly, if there is not enough there for that then many of these types of expenses would be what you have an emergency fund for.
Planned irregular expenses are a whole different deal. These are bills that you know are coming. They are predictable. You should have a pretty good idea of how much they will be. The problem is they don’t come every month. So if you aren’t planning for them when the month comes around, suddenly your budget is wrecked. You don’t want to have to spend 2 weeks eating nothing but ramen noodles and tuna fish because the house insurance was due and you didn’t plan for it. Or worse yet you end up just paying a bunch of things with your credit card because who knew the real estate taxes come due in February and August (just like they do every year…).
Well there is a very simple solution to this. Basically, the idea is you simply list these expenses down on paper. Divide the amount by how often they occur. Add it up and this is the amount you need to set aside each month. So for example, lets say I get a utility bill that comes in once a quarter, I pay my real estate taxes twice a year, and my house insurance comes due once a year. So for the sake of round numbers we’ll say I have the following amounts to plan for:
|Expense||Frequency||Amount||Monthly Budget Total|
|Utility bill||3 months||$120||$40|
|Real Estate Taxes||6 months||$900||$150|
|House Insurance||12 months||$600||$50|
So if those are my irregular expenses I now know I need to set aside $240 (40+150+50) per month to cover these expenses. I think the best way to do this is to set up a completely separate checking account for these expenses. That way you aren’t as tempted to dip into these amounts for other things. You can either set up an account at your existing bank or you can set up one at a different bank. Doesn’t matter. Now you just make sure you transfer that amount of money each month and you are all set. In my case I get paid twice a month so I would simply plan to transfer $120 out of each pay over to this account, but you can adjust that to whatever fits your situation the best.
So now when the month comes along when the real estate taxes are due I simply write a check out of that other account and pay my taxes. No more stress. No more going to the library to check out 1001 Ways to Prepare Tuna Fish and Love It.
So what types of things should be budgeted this way?
- Tax bills
- Utilities that aren’t paid monthly
- Medical Bills ( bi-annual checkups? Mail order prescriptions that come in a 90 day supply?)
- School fees perhaps
- Regular car maintenance like oil changes
These are just a few examples to get you thinking. You can probably identify what you need to plan for pretty easily what you need to plan for in your specific situation because all you need to do is remember those painful months when one of these bills jumped up and bit you.
Unplanned expenses can be difficult. That’s why you need an emergency fund to give you a safety net. Irregular expenses though that are predictable should never torpedo your budget. With just a little bit of planning you can take all the bite out of these non-monthly bills.