Accounting for Irregular Expenses
Learning how to manage your budget it critical if you want to grow your wealth or get out of debt. Outside of what Dave Ramsey calls the “four walls” of living – food, shelter/utilities, clothing, and transportation – there are a variety of other, smaller items that every good budget should have, yet many leave out. Last week, we discussed these common items, many of which are easy to calculate and consider as an additional monthly expense.
However, the real “budget busters” when it comes to derailing financial progress are often not these small or regular items since experience with budgeting will generally bring them to light. Instead, the secret to successful budgeting lies in recognizing and accounting for “irregular expenses.”
What Are Irregular Expenses?
As their name implies, irregular expenses are those items outside of your regular monthly budget that cost you significant sums of money or add up to significant sums of money over time. Taken by itself, most single “irregular expenses” are easy to handle, especially if you have set up the desired 3-6 month emergency fund (EF, in finance speak).
Unfortunately, too many people either don’t have an EF or don’t use it correctly. In addition, despite their name, irregular expenses as a whole are more common than most people think. Just consider this (brief) list of irregular expenses:
- Estimated tax payments
- Homeowner’s insurance
- Home repairs
- Vehicle repairs
- Propane/Oil fills
- Lawn care
- Snow removal
- Vehicle inspections/registrations
- Pet licensing
- School photos
- Field trips
- Sports equipment and uniforms
Some of these costs are minor, others are larger depending on where you live. Some are yearly, some are biannual, and some are quarterly. All of them add up, and fast.
How to Prepare for Irregular Expenses: Simple Tips and Tricks
Many people make the mistake of paying for their irregular expenses out of their main EF. The problem with this is that, though doing so is better than not having the money at all, your EF is for major emergencies such as a job loss, medical bills, or when you total your car. It is far better (and less stressful) to have a separate, targeted EF or several targeted EFs that support the smaller, expected-though-irregular expenses. This means making a specific effort to account for these expenses in your greater budget.
To do this, it is helpful to think of good budgeting like a vacation (which, by the way, is something you can look forward to with good budgeting). In other words, plan your budget like you would a dream vacation, taking everything from how to get there to what you will do to what you will bring into account. In other words:
Draw a map.
Figure out your budget yearly first, this is the best way to find hiding irregular expenses. Start by look at last year’s taxes, as well as bank and credit card statements. Be on the lookout for both one-off costs and semiannual or quarterly items like insurance premiums, water bills, and propane tank fills.
Make a schedule.
Using the yearly standard, break down the paying (and saving) for each of these items into a realistic monthly figure. You can set aside the money all together into one savings account or separate it by category such as “repairs”, “bills”, etc. Many banks allow users to subcategorize their savings accounts through their online portal.
Keep it light.
There’s a saying about travel: pack half the clothes you think you’ll need and twice as much money. Budgeting is much the same way. Lighten your load, and increase your cash. It is also important to consider the “packaging” itself. For example, although paying insurance in one large sum seems like a lot, most companies give discounts to those who do. Ditto for packaging things like home, auto, and life insurance together through one company or one of the etf brokers UK has.
Getting on the “Road” to Budgeting Success
Budgeting it an excellent tool that, properly utilized, will lead you to financial freedom. However, it is also an inexact science. There are many factors that contribute to the health of your budget from month to month and year to year. Some, such as irregular expenses, are easier to manage when you plan ahead. Plus, all of the bumps in the budgeting road are easier to navigate as you gain control over your money and grow your wealth.
**What are some of your tactics for handling life’s “irregular expenses”?**