You have worked out your budget. You think you are all set for the month. But by about a week in you feel like you are totally off track. You wonder what happened and if maybe budgeting just doesn’t work for you.
Often it isn’t the regular month to month expenses that do us in. It’s the little irregular ones or the unexpected expenses.
There are many expenses that we don’t pay on a weekly or monthly basis.
- Insurance premiums
- Licenses – Auto tags, drivers licenses, hunting licenses, pet licenses, etc.
- Real estate taxes
- Club memberships
- School fees
- Software licenses (backup, anti-virus, services, games, etc.)
- Tickets (Sporting events, theater, concerts)
- Magazine subscriptions
- Estimated tax payments
- Oil changes
- Dental and vision check-ups
- Extra-curricular activities
- Gifts (Christmas, Birthdays, Weddings, Graduations)
- Homeowner association fees
- Heating oil or propane fill ups
- Tuition payments
Irregular expenses are guaranteed budget busters, but they are easy to fix. The key for irregular expenses is simply a little planning.
- List all your irregular expenses for the year.
- Add them up
- Divide by the number of pays you receive in a year, i.e. if you are paid twice a month then divide by 24, if you are paid weekly divide by 52, etc.
- Save this amount of money each month in a separate bank account.
- As they come in pay those irregular expenses out of that account.
So, for example, let’s say when you add up all the irregular expenses, they total $1,200 for the year. You get paid twice a month so you have 24 pay periods each year. You would want to take $50 (1200/24) and set it aside in a separate account each year.
You can use a separate savings account at your current bank or you could set up an account at a different bank. It doesn’t really matter. The important thing is you keep it separate from your regular account that you use to pay your regular expenses. The problem with keeping it all together is there will be a tendency for the money to disappear.
The key with irregular expenses is remembering them. If you are new at budgeting, you’ll forget some. That’s ok. Just adjust your totals when you find a new expense.
Even if you are experienced at budgeting, this can trip you up because expenses change over time. I have used this method for years for irregular expenses and it has worked great. And yet I’ve notice over the last few months that my budget always seems a little off. I realized a couple months ago my problem is I’ve had new expenses creep into my budget that I didn’t account for. Things like Carbonite to backup my PC, season tickets for football at my college alma mater, Amazon Prime, a few new magazine subscriptions, etc. None of these are large expenses, but it seemed like every month there was one of these expenses that bit me. I realized that I need to be more diligent about identifying these irregular expenses as I do my budgeting.
While irregular expenses are predictable but not regular, unexpected expenses can be just as damaging to our budget.
- Home and car repairs
- Emergency room visits
- A sick pet
- Storm damage
- Appliance repairs or replacement
- Job loss
There are really two answers for dealing with unexpected expenses.
First, while some expenses may be a surprise, they aren’t really unexpected. Sure you didn’t know the alternator was going to die on the way home from work and leave you stranded today. But we all know that cars do break from time to time. We don’t know what will break. We don’t know when. But we know it will. So in that sense it really shouldn’t surprise us. If we are budgeting well, we should be setting aside a little bit each month for car repairs and home repairs. Then when the inevitable happens we are prepared.
Second, for the expenses that truly are a surprise or expenses that we haven’t had time to save enough for, the answer is an emergency fund. Life happens and sometimes it’s expensive. But if you have a good emergency fund of 3-6 months of expenses, it doesn’t have to be a budget buster.
In the time between Thanksgiving and Christmas this past year we had to make some rather major repairs on our van, then a couple weeks later we had a fairly expensive plumbing issue to fix. Throw the extra expenses of the holidays in and there just wasn’t enough coming in. A few years ago that would have meant credit cards and more debt, but now that we have a fully funded emergency fund, we just paid the bills, enjoyed the holidays, and worked to build the emergency fund back up later. No worries. No stress.
Avoiding the budget busters
Irregular and unexpected expenses can certainly be budget busters. But with a little planning and a little saving they are nothing but a little speed bump on your road to financial success.