Many people struggle with effectively managing irregular expenses. Unexpected expenses can quickly drain a budget and force individuals to make adjustments that threaten to undermine financial goals.
One way to combat unexpected expenses is to establish monthly-specific budget categories. This is an effective way of breaking up larger expenses into manageable chunks that are easier to handle.
Set Up a Separate Savings Account
Once you've identified all of your irregular expenses and know their annual cost, it is time to establish a savings account dedicated to them. If possible, arrange to have money automatically transferred or deposited into this account each month.
Some non-monthly bills may be consistent month to month; others might come up all at once and be expensive in an instant. Either way, your budget should accommodate this by adding month-specific or lump sum accounts for these expenses.
Additionally, you could try totalling all annual costs and dividing by 12. This can help minimize surprise bills when they arrive and prevent you from altering your regular monthly budget. Furthermore, it ensures that expenses do not eat into emergency savings or other goals you set for yourself financially; if this becomes an issue consider switching to zero-based budgeting as an alternative approach.
Create a Sinking Fund
Know when a non-monthly expense is coming up so that you have enough savings in place before it occurs - this prevents using credit cards or tapping into emergency savings to cover it.
Start by estimating how much the expense will cost (even if only an estimate) and when it might occur. Divide this total by the remaining months before its due date to determine your monthly savings goal.
Next, determine how much money you want to save every month and add it as a new budget line. Saving can either take place through a separate savings account or using spreadsheet software to divide up regular bank accounts into "buckets." Whatever method you choose, just be sure that you stick with it! Otherwise, the funds won't be available when needed, so keeping track of progress is also vitally important.
Set Up an Automatic Savings Plan
Living on irregular income requires careful planning; with the appropriate strategy in place, however, your money can work for you!
Start by calculating the annual costs associated with irregular expenses like insurance bills, birthday parties, holiday celebrations and so forth. Once you know their total amount, divide that figure by 12 to find out how much money needs to be saved each month to cover these irregular costs.
Setting up a targeted savings account at your bank or credit union can help. Once it's set up, automatically redirecting some of your income each month will help build up an emergency savings fund over time, so when expenses arise you won't have to depend on credit cards for payment.
Keep Track of Your Irregular Expenses
Irregular expenses include costs that don't occur every month, such as annual insurance premiums, occasional auto repairs and professional fees. Without proper budgeting in place to account for them, these infrequent bills could wreak financial havoc and cause severe strain to one's finances. Effective financial planning includes identifying irregular expenses, estimating their costs and including them into your annual plan as a hedge against unexpected financial strain.
To identify irregular expenses, examine past bank statements and credit card transactions to estimate annual costs, then divide that number by 12 to determine their monthly impact. A budgeting app such as EveryDollar may also help track spending while categorizing items into different categories.
Keep a small notebook and pen handy in your purse or wallet to record each transaction as you make them, to easily identify patterns in your spending and adjust any necessary. As soon as this process is done, regular deposits to an irregular expense account may help smooth out expenses over time.
An Article by Staff Writer
Bryan Navarro
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