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So you’ve got your budget all set and things are going great! You really feel like you’ve got a handle on this money thing and are even starting to have some extra funds for fun stuff. But then your car insurance bill comes and all of a sudden, your excitement is squashed.
Sound familiar? It doesn’t have to be that way! There is a very simple way to make sure you never get caught off guard by an expense you didn’t plan for again. And when you hear it, you’re going to wonder why you never thought of it yourself. Just add those irregular expenses to your budget!
Budget For Expenses That Don’t Come Every Month
We all have those bills that we only have to pay every 3, 6, or 12 months (or maybe some other random amount of time). A lot of times we don’t think about them at all until they are due. The problem with this is that when they come due, we have to scramble to find extra money in our budget that we really don’t have. Let me give you an example.
Emily has a $300 car insurance bill due every 6 months. Every month she budgets her monthly expenses and has $100 left over. Since she’s only thinking about the current month and not planning ahead, she thinks she has $100 spending money, so she goes shopping, goes out to eat, and hangs out with her friends. She has a blast every single month! But then her car insurance bill comes and she realizes she doesn’t have enough to cover it. Even with her $100 extra after all of her regular expenses are covered, she’s still $200 short.
Shawn also has a $300 car insurance bill every 6 months and has $100 left after covering all of his monthly expenses. But he plans ahead. He knows his car insurance will be coming so he budgets $50 a month for it and still has $50 left to spend. He also gets to go out with his friends once or twice and enjoy himself! And when his insurance bill comes, he just pays it! Plus he still has his normal $50 spending money for the month.
Would you rather be like Emily or Shawn? Personally, I’d choose Shawn!
Some things that might fall into this category include:
- Insurance (car, home, life, etc.)
- License plate stickers
- Trash pick up
Budget For Holidays & Events
Holidays are something you can plan for every single year. They always happen at the same time and you aren’t caught off guard by them. Events may not be as regular, but you usually know weeks or even months in advance so you can plan for them. The best policy is to always set aside a little bit each month for as long as you can so you can be prepared when these holidays or events come. To figure out how much you should set aside, decide how much you want to spend and divide it by the number of months you have to save. It’s just that simple!
Some holidays & events you may want to plan ahead for:
- Special Events (weddings, graduations, milestone birthdays, etc)
Budget For Large Purchases
Large purchases might be a little more unpredictable but still expected. Eventually, your appliances will stop working, your furniture will need to be replaced, or you’ll need a new computer. Because we know that nothing lasts forever, we should definitely be planning for these expenses. But since we don’t know the when and how much, the amount we budget may vary. There are some ways to estimate costs. You might know that your computer is likely to last for about 3 years, for instance, and that you’ll probably need around $1,000 to replace it. So, in that case, you could just divide $1,000 by 3 years (36 months) to figure out how much to set aside. But other purchases might not be so easy to determine. Just make sure you’re setting aside at least a little something in these categories every month so you can be prepared!
Some large purchases to consider budgeting for:
- Large appliances
- Replacement vehicles
- Down payment on a home
Budget For Unplanned Expenses
The last and biggest thing you should always, always, always include in your budget is an emergency fund for those unexpected expenses! Life happens. People get sick, cars break down, and things get broken. You can’t always plan for these things, but you can be financially prepared! There are three main categories I recommend including in your emergency fund:
- Medical Expenses
- Car Maintenance & Repairs
- Home Maintenance & Repairs
My goal is to have my full out of pocket max amount in my medical fund, at least $500 per car in my car fund, and at least 5% of my home’s value in my home fund. Now, I haven’t reached those goals yet, but I do fund these categories a little every month and try to keep them at a minimum of 25% funded at all times.
Some of you may be starting with no savings at all, though. And that’s ok. Set a goal of getting at least $1,000 into savings as quickly as possible. And then build that up to at least 3 months of expenses. Beyond that, it’s really up to you to decide what level of savings you’re comfortable with.
Here are two things to consider, as well. First, keep your emergency fund in a money market or other interest-bearing account separate from your main spending account. This will let you earn interest on your money and also make it a little harder to access which will deter you from spending it on things you shouldn’t. Second, don’t over-fund your emergency fund. Build up enough of a buffer that you can feel comfortable, but don’t put too much money here. Past a certain point, your money will serve you better elsewhere (like in investments or other, higher yield, savings plans).
The biggest thing to remember is that your emergency fund is just that, for emergencies! That doesn’t mean if you overspend on your groceries that you should borrow money from here. It also is not for regular maintenance expenses like oil changes for your car or air filters for your furnace. Those are things you should be budgeting for anyway.
The emergency fund is for those big expenses that you know will happen someday but you don’t know when. Things like a broken bone, your car breaking down on the side of the road, or a leak under your sink. You might also find it necessary to tap into emergency money for some of those large purchases (maybe your fridge stops working long before you expected it to), but your goal should always be to cover expenses from your regular budget first and rely on your emergency fund last.
You can avoid so much stress and frustration when you plan ahead for expenses. There are very few expenses that are completely unexpected when you really think about it. We all know that bills will come (even if it’s not every month), holidays and events are very predictable, and large purchases and “emergencies” will happen (we just may not know when). So start planning for these expenses now and set aside a little each month so that when the time comes, you’ll be prepared! It’s one of the best feelings in the world when you can just pay for something big without worry because you planned for it!
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