Plenty of people are used to creating monthly budgets for their regular expenses. Once you get the hang of calculating how much money you have coming in and how much you have going out, you can effectively create a budget for any given month. However, a major part of being able to do that is knowing what exactly you need to pay for. As not all of life’s expenses are as clear-cut as your monthly utility bills, you need to have a financial plan for major expenses that only happen once or twice a year.
Fortunately, these expenses don’t always have to take you by surprise. By planning for them, you can avoid paying for a major expense with your credit card at the last minute and accumulating more debt. Let’s take a look at a few practical budgeting tips for irregular expenses and what these expenses tend to be so that you can prepare more effectively for your financial future.
Use Past Statements to Plan Ahead
By revisiting your past expenses, you can start to plan for the future. This is one of the most practical budgeting tips, whether you’re planning for monthly expenses or irregular ones. While the irregular expenses you had to pay last year may not be exactly the same as the ones you have to pay this year, they can give you a general idea of what you need to plan for. Start by examining your bank statements from last year. Look for any spending transactions that were outside of your usual monthly expenses and write down the amount you paid and the date you paid it.
Once you have a full list of your expenses from last year, break out your calendar for this year and consider what expenses will occur again and what new ones might crop up. Insurance premiums are common irregular expenses for many families, as people often do not pay their premiums monthly and instead pay a lump sum quarterly or halfway through the year. Be sure to take a look at your health insurance and car insurance premiums to plan for when those will be due. Remember to consider more pleasurable expenses as well, such as purchasing Christmas gifts or buying a bridesmaid dress for your best friend’s wedding. Even if you’re spending money to have a good time, you still need to have a plan for that money. Other irregular expenses you may need to account for include car tag renewal fees, vacations, back-to-school supplies and clothes, vet bills, and HOA dues.
Determine Your Payment Schedule
With your list of expenses that are on the horizon, you can now figure out when you’re going to pay for each expense during the year. The expenses can seem overwhelming, especially when they’re all written out, but you can make it more manageable by adding the expenses to your monthly budgets. There are a couple of different ways you can do this and the practical budgeting tips you choose to apply will depend on your unique needs and budget.
One method is to add them to your monthly budget for the month that you know they’re due. For instance, you may know that you have to pay quarterly HOA dues and your annual car insurance premium every April. You can then factor these expenses into April’s budget so that you don’t have to worry about them for the rest of the year. If you can’t fit both of these expenses into April’s budget, you could decide to work one into February’s budget so that you get it paid on time without overwhelming your financial resources. This method of budgeting works best for expenses that have a hard due date that you can plan for.
If you have an expense coming up that doesn’t necessarily have a set due date or its a large expense that can’t fit into a single month’s budget, you could create a monthly fund for the expense. For instance, you may know that you need to take your vehicle in for car repair in June so that they can replace the rusting subframe and that it will cost about $600. If you make the appointment for the replacement and get the estimate at the beginning of the year, you can then plan to budget $100 every month from January to June and put it in a savings fund to pay for the repair. This helps soften the financial blow in June and makes a major expense much more manageable.
Build in a Buffer
Even the most thorough budgeter can’t predict every unexpected expense throughout the year. Whether you need to take your child to urgent care to treat a nasty cough or your car suddenly breaks down on your way to work, expenses crop up that you haven’t specifically budgeted for. While you may have a savings account or emergency fund that you have set aside for these types of situations, you’ll want to avoid using that fund at all costs. This makes it important to build a buffer into your budget.
When you calculate your monthly budget, add in a surprise expenses category. The amount you set aside is up to you, but it doesn’t have to be a lot. Just $50 per month can do the job, as that’s $50 you don’t have to take away from another budget category if a surprise expense pops up. If you don’t end up using it at the end of the year, you could sock it away in your savings account or use it to treat yourself when you go on vacation.
If you don’t currently have enough room in your monthly budget to build a buffer, try finding ways to cut down on your current expenses or to generate more income. For instance, you could try to lower your car insurance premiums by shopping around to compare different companies’ rates. You may find that you’ve been paying more than you need to. To generate more income, you could contact employment services to help you find a similar job that pays more than your current position or find a side gig that could get you some extra cash. By working just a few extra hours per week, you could start building a buffer into your budget.
Decide Where You’ll Put the Money
Whether you’re using these practical budgeting tips by dedicating part of your monthly budget to save up for a major expense or you’re building in a buffer, you need to know where you’re directing these funds to. The account you choose to put this money in will largely depend on your spending tendencies.
If you are good at budgeting and tracking, you could just have one general savings account and transfer the amount you need to save every amount for your irregular expenses into that account. To keep track of your funds and ensure that you’re on course to pay for your irregular expenses, you’ll need to break down the funds in this one account yourself and keep a good record of how each individual fund stands.
Another option is to set up a separate account for irregular expenses or individual accounts for each large expense. This means you may have an account for a vacation fund, one for a new car fund, and one for an insurance premium fund. By having separate accounts, you can more easily track where you are with your saving goals and you’ll be less tempted to dip into the account for other things. To discourage yourself from misusing a fund, you could open an account at another bank so that it will be more difficult to access. You could use an online bank to do this or a local bank that has limited banking hours or branch locations.
Now that we’ve discussed practical budgeting tips to help you afford irregular expenses, let’s take a look at specific expenses that tend to pop up every few years. You’ll be able to use these practical budgeting tips to better account for these expenses so that they don’t take a toll on your finances.
Budgeting for Home Renovations
Homeowners are very familiar with how expensive renovations can be. Whether you plan a project far in advance or you suddenly need to budget to fix damage a natural disaster caused, renovations aren’t cheap. If it is cheap, that’s a red flag that you may be paying for low-quality work that will require you to re-do it sooner rather than later.
The first of the practical budgeting tips for home renovations is to ask for free estimates. If you’re having your home’s roofing replaced, contact a few different roofing companies that offer free estimates and have them take a look at your roof. Get at least five estimates and remember that a low rate often indicates low-quality work. You’ll want to work with a roofing company that offers competitive rates, is properly licensed and insured, and that takes the time to explain the details of the replacement to you.
Once you get an estimate for your renovation, consider the materials you’ll be using. No matter what kind of home renovation you’re doing, you’ll likely have a variety of materials to choose from and each comes with a different cost. If you’re getting a new garage door installation, for instance, then you’ll need to choose the material, design, and color. All of these will impact the overall cost of the installation as well as the quality of your new garage door. Be sure to price the materials on your own so that you know what to expect when the installer gives you an official quote.
Once you know the cost of the materials and get an estimate from an industry professional, start saving money over the course of a few months. Unless you must replace a roof or garage door immediately because it was severely damaged, waiting to do the renovation after you get the estimates will help ensure that you can save up enough money. This method works for home maintenance as well as renovations, such as paying for plumbing services to fix leaky or clogged pipes. By getting an estimate early on, you’ll be able to pay for plumbing maintenance before it turns into a plumbing emergency and costs you more in the long-run.
Budgeting for a Car
Getting a new car can be a very exciting endeavor, but it can also be rather costly. While you can pay off a car with a loan, you still need to ensure that you can afford the down payment and that the monthly car payments won’t stretch your budget too thin.
When you’re shopping for a vehicle, try to aim for a car payment that equals out to no more than 15% of your gross pay or 20% of your take-home pay. Any more than this, and you may not have enough money coming in to afford the car. You should also plan to pay a down payment that is at least 20% of the vehicle’s purchase price. To avoid accumulating too much interest, the maximum term of the car loan should be 48 months.
Once you sort out these calculations with your income, you’ll know what your budget is to purchase a car. Of course, finding a car that fits in your budget is just as tricky as figuring out your budget. Try going to a used car dealer to find a vehicle that you can afford. You don’t need to get a brand-new car to have a high-quality vehicle. Shop around at the used car dealers in your area to find the best deal. Many dealers will also offer discounts during certain holidays or times of the year, so planning your purchase during those discount periods can lead to extra savings.
These practical budgeting tips can work for other types of vehicles as well. If you’re looking to purchase a motorcycle, search for a used motorcycle for sale. You’ll likely be able to find one that’s in good condition but that you don’t have to pay top dollar for. If you’re buying a boat, RV, ATV, or any other kind of vehicle, doing some comparison shopping and planning out your budget before you sign the dotted line can help you avoid getting into debt that you can’t get out of.
When it comes to practical budgeting tips, there are plenty you can employ that will fit your lifestyle and needs. Just be sure to recognize your own spending habits and tendencies to identify the practical budgeting tips that will work for you. If you know you tend to dip into your savings account, set up that separate account for irregular expenses that you won’t be able to easily access. If you have a passion for spreadsheets and calculations, simplify your finances with one savings account that you keep detailed track of. These practical budgeting tips can help anyone plan for the irregular expenses in their life, you just need to know which are most useful for you.
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