Budgeting is often fairly straightforward in terms of regular, consistent expenses, such as rent and utilities. However, when it comes to how to save up for irregular expenses, things can get a little trickier. We’re going to talk through a good method for saving for irregular or special expenses so that they don’t sneak up on you and drain your finances.
Why budgeting matters
If you don’t already have a regular budget, creating one is the best place to start.
Why budget? Though budgeting may sound restricting if haven’t done it before, creating a monthly budget is actually very freeing. When you have a plan for where your income will go each month, you’ll never have to guess whether you have enough money for what you need. You get to be the one to decide where every dollar goes, rather than flying by the seat of your pants and hoping that it all works out.
If you don’t already have a monthly budget or feel confused about the way you’re budgeting, check out our tips on how to budget for financial success.
Okay, so you have your budget figured out. You know approximately how much you spend each month for necessities, such as rent, heat, gas, and groceries. You know how much to allocate each month for extra expenses such as recreation and clothing.
But what about those non-monthly expenses? You know, the ones that only occur once or twice a year, or even less often than that?
Some examples of these types of expenses could include:
- New couches
- New car
- Bi-annual property taxes
How to save up for irregular or special expenses (expenses that don’t occur every month)
Just because these expenses don’t occur every month, it doesn’t mean that they have to sneak up on you. Most of us, at one time or another, have received a large bill that we actually could have anticipated but didn’t. Instead, we feel blindsided by it and wonder how we’re going to scrape up the money.
Fortunately, in most cases, it doesn’t have to be this way. You can prepare in advance for irregular or special expenses. Here’s how:
1. Do your best to predict the expense in advance
In many cases, the expense itself doesn’t have to be a surprise. Christmas comes every year. Usually, vacations are planned ahead of time. New couches are generally a want, not a need, which means that you can just save for them until you have the money.
Take a look at the next few months or year. What large expenses might be coming up? What goals do you want to save for?
2. Figure out how much it’s going to cost
Next, figure out what it’s going to cost. Do some research on couches and pick out the ones you want. Think about how many Christmas gifts you’ll need to buy and for how many people. Look at what your property taxes cost last year.
3. Calculate how many months of budgeting you have until the expense occurs
Some expenses, such as Christmas and vacation, will probably occur at an already specified date. You don’t get to choose when Christmas happens. Property taxes come at the same time every year.
Other expenses, such as purchasing a new car or new couches, can happen when you have the money.
Let’s start with expenses that have a fixed date. If it’s August, you have 4 months until Christmas arrives. Let’s say you’ll need $400 to pay for all of the Christmas expenses. I bet you can guess what the next step is…
4. Divide the amount you’ll need by the number of months remaining
Lastly, divide the amount you’ll need ($400 in this case) by the remaining months of budgeting (4). Easy! You’ll need to budget $100 per month for the next 4 months in order to be adequately prepared for Christmas expenses. (If you start in January next year, you’ll only have to budget $33 per month!)
For purchases that aren’t time-sensitive, you can alter this method slightly. Perhaps you need $1000 for new couches. This month, after you pay all of your bills, lets say you have $100 left over. Next month, you may have $200 left over. Maybe the month after that you only have $50 extra. That’s okay. Simply keep saving each month and set it aside for your couch until you have enough. When the money is there, you can pull the trigger!
A note on emergencies
Please note that when we mention irregular or special expenses in this context, we’re referring to expenses that are either unnecessary or can be anticipated.
Emergencies, such as unexpected hospital bills or a totaled vehicle, should be handled through your emergency fund.
Have questions about budgeting?
Budgeting – and even how to save for special or irregular expenses – doesn’t have to be scary or confusing. Instead, your budget can be an integral aspect to a successful financial future.
Have questions about how to prepare for retirement or simply get your finances in order? We can help. Contact us today to set up a meeting.
This material is not intended to replace the advice of a qualified tax advisor, attorney, or accountant. Consultation with the appropriate professional should be done before any financial commitments regarding the issues related to the situations above are made.