We are all aware of those pesky irregular expenses that are so hard to fit into your monthly budget because they don’t occur regularly.
These bigger expenses are a challenge to plan for and it can be easy to forget about them completely because they aren’t accounted for in your monthly expenses. When it does come time to pay them, you may not have the money set aside for these costly expenditures.
So, how do you budget for these larger expenses that might come once, twice, or three times annually? Costs like insurance bills, special occasion spending, vehicle registrations, home maintenance, and major subscription services.
Here are a few tips for going about saving yourself the headache of managing unforeseen costs without a budget:
Identify Costs Ahead of Time
If you can access them, look at last year’s bank statements and go through them with a highlighter to identify all the bigger irregular expenses. If those costs will be repeated this year, then take note of them and make sure you give yourself time to prepare for them.
Combine all those Big Irregular Expenses
After you have gathered all of your nonbudgeted expenses, pull out your calculator (likely your smart phone), and total the amount as a yearly expense. This will give you a really clear idea of how much money you need to have ready to cover these random charges.
Fit the Total in Your Monthly Budget
After you’ve got that yearly total, divide it by twelve so you can fit a fraction of the total expense into each monthly budget you plan. If it automatically fits into your budget, great! But if you need to move a few things around to make it work, then do so and focus on rearranging your budget. You can do this by minimizing those wants, making your needs a priority.
Create a New Account Dedicated to Big Expenses
If that extra money isn’t removed for paying those bills every month then you are likely to spend it on other things. Instead of letting it sit there, create a separate account for it and deposit the budgeted amount every single month like if it was a bill you were paying. Now whenever those expenses come around, you will be ready with that designated savings account.
What about Surprise Expenses?
While these strategies should cover a majority of your reoccurring financial issues, they aren’t much of a solution for those expenses that come out of nowhere and are a complete surprise.
Your designated account might not have the funds to cover those bills. This might be the moment when you choose to rely on credit cards, friends or family, or an installment loan such as a title loan–which is secured using your vehicle.
But this is a predicament that you could possibly avoid in the future by adding a little cushion to your expenses throughout the month. If you add a little more than the budgeted monthly amount, then you would have extra funds to cover those surprise expenses. It is also vitally important to remember that having an emergency fund could be the single most important financial move you make. It will give you a safety net for anything life throws at you!
P.s. If you are reading this because you’re short of money and you live in Canada, consider apply looking at loans through Smarter.loans. They’re a nice little loan marketplace north of the border. They’ve got excellent customer service, good offerings and their interface is easy to use.
Photo credit: Pictures of Money, via Flickr.