Budgeting for irregular expenses is an easy step to forget. Do you know what irregular expenses are? They are the bills that only occur every so often and you COMPLETELY forget to add them to your budget. Unfortunately, if you are not prepared and they sneak up on you it is easy to feel that your whole plan is doomed.
We’ve all experienced the dread of opening up the mailbox and finding that unplanned bill especially when you are so diligent about creating your monthly budget. Of course, this happens despite how much planning you do. On the bright side, you learn to prepare.
When solar panels were first installed on our house they informed us that PG&E (our utility service) would send us a true-up bill each year. Evidently, I didn’t understand this because I eventually received the added fees on our bill. Yikes!! The bill was $500 more than usual!! Consequently, this is not what I was expecting to see. Thankfully, there was money set aside to make the payment and from that moment we considered the added one-time per year expense into our monthly budget.
Don’t let the irregular expenses get to you. Instead, take charge, be prepared, and, carry on.
What are some irregular expenses?
Below is a list of irregular expenses. As you are working on your budget, keep these in mind.
Vehicle: maintenance, registration, tires
Insurance: home, auto, medical, life, disability
Health: Medical and dental co-pays, glasses/contacts, medications
Pets: Vet bills, licensing, medications
Home: repairs, upgrades, housecleaning, gardening
Utilities: Cell phone expenses, seasonal differences, my true-up experience
Education: Tuition, books, school supplies, teacher gifts, class gifts
Personal Care: Nails, hair, massages, clothing, makeup
Leisure: Sports venues, membership fees, kids activities, holidays/birthdays, movies, parties
Taxes: Property, Income tax
Although there are many more, this gives you some examples to consider when making your expense list.
You know what they are, now what?
Write down every irregular expense you have along with the amount you pay and the frequency that you pay it. Then multiply the amount by the frequency to get your annual cost.
Here is an example. ( I am only listing a few to give you an idea).
Property Tax: $6500 x 2 times per year = $13,000 per year
Home and Auto Insurance: $600 x 2 times per year = $1200
Pets: looking at past bills we average $1000 per year
In this example, I spend $15,200 each year that may not be included in my monthly budget. Now, break this down into smaller numbers to make it more manageable. Below are two methods to do this.
One method is to divide the total amount by 12, giving you your monthly expense. For example, $15,200/12 = $1267.
Similarly, you can divide by the number of paychecks you receive, resulting in a smaller amount with more frequency. For example, if you receive 26 paychecks per year the calculation is $15,200/26 = $585.
For this blog, I will use the first method as an example. Choosing the second method is a similar process. However, do what feels best for you.
Irregular expenses are broken down by month or paycheck, now what?
Consider this amount in your monthly expenses. Each month (or paycheck if that is the route your choose) transfer the total “irregular expense” amount into your savings account. Ideally, label the accounts to be very clear what you are saving for. “Savings for Property Tax”, “Savings for Insurance”, “Savings for Pets”. I create pseudo accounts in Quicken, helping me keep things straight. But, whatever software you choose will likely do the same.
But wait! What if you don’t have enough money each month to put aside? Unfortunately, you need to re-evaluate your spending, find opportunities to earn more income or adjust your lifestyle. Your goal is to live at or below your means. Otherwise, you are always behind.
If you earn an irregular income you have other challenges. You can check out my blog BUDGETING FOR IRREGULAR INCOME to get some tips.
Preparation for your irregular expenses puts you in the driver’s seat for your budget. Also, you have peace of mind that you have the money to pay the bill. Equally important, there is no stress or anxiety, bringing a little more balance into your life.
How do you handle your irregular income? What are some challenges you face? Please comment below. I would love to read all your comments.
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Stay Balanced,
Jill