11 Feb Budgeting for Irregular Expenses
So you’ve taken the time to work through your monthly budget. You’ve identified where you can cut back on your spending. You’ve resolved not to use your credit cards anymore. And for a month or two, you might actually be sticking to the budget.
Surprise Expenses Ruin Budgets
But then it happens. Something comes along and surprises you out of nowhere. It totally messes up your budget and throws you off track. The worst part is it’s an expense you knew was coming but you forgot about it! It’s an expense that comes along on a regular basis but doesn’t happen every month so like many people do, you forgot it.
First of all, don’t feel too bad – you’re not alone. One of the most common things that messes up a household budget is the occurrence of irregular expenses. But that doesn’t mean it’s impossible to do.
When Irregular Expenses are Predictable
There are a couple different methods you can use when budgeting for irregular expenses. If you know the expense is coming and you know when it will happen, you can use the sinking fund approach. This is where you divide the expected expense by the number of months you have until the expense hits, then set aside that amount every month.
For instance, if you know you’d like to replace your car three years from now and you know you’ll need $7200 on top of your trade-in amount, you can divide the $7200 by 36 months and set aside $200 each month for the car. On a smaller scale, our family pays our water bill every three months so we set aside 1/3 of the expected amount in each month’s budget.
Unpredictable Irregular Expenses
If you know it’s coming but you don’t know when, you can simply set an estimated amount and save until you reach that savings goal. Once you reach the goal, your money can stay there until you use it. Meanwhile you’re free to use leftover cash flow for something else.
You could overestimate every category on your budget so you end up with a surplus at the end of the month but that may get you in trouble too. Whenever I know there’s extra wiggle room in the number we wrote in the budget, I get tempted to spend the excess on short-term wants instead of long-term needs.
Whichever method you choose, the important thing is to acknowledge that irregular expenses will happen eventually. Once you recognize they’re coming, budgeting for them is easy. And having them in the budget makes all the difference when the bills actually hit. Just being prepared for them means you’ll be able to handle them with less stress and less impact on your financial situation.