If you're just joining us, don't forget to check out our other Budget Boot Camp posts.
- Calculating your net worth
- Setting financial goals
- Tracking your spending
- Budgeting for regular monthly expenses
To Do #5: Budget for Irregular Expenses
Step 1: Brainstorm potential expenses and their amounts
Take a moment to brainstorm those irregular expenses that crop up during the year. Personally, when it comes to creating expense categories, I've found that it's actually easier to be specific (within reason) than general for a few reasons. First, it's easier to figure out how much your going to spend if you break it down into sub-categories. For example, you're probably going to come up with a more accurate amount for "gifts" if you've broken it down by holiday. Second, it's actually easier to categorize when things are specific. If you have a category for parking at the airport, you're not going to waste time trying to decide if you need to use your monthly parking budget or your irregular travel budget. If you're using our free budget template, we've gone ahead and brainstormed a lot of categories for you (listed below), and left you with spaces to create your own custom categories. Download our free template on our Facebook page. Do any of these apply to you? Do you need to create additional categories?
- Insurance: Car, renters/homeowners, medical, dental, life, disability
- Car Related: Registration, safety inspection, oil changes, car washes, excise tax, car repairs, miscellaneous parking
- Travel: Plane tickets, car rentals, gas and tolls for road trips, parking at airport, transportation to airport, food for travel, checked luggage fees, entertainment on vacation
- Gifts: Wrapping supplies, birthday, Christmas, wedding, baby shower, Mothers Day, Fathers Day
- Medical: Copays, parking at the doctor's office, flu shot, prescriptions, contacts/glasses, dental bills, vision bills
- Memberships/Subscriptions: Costco membership, Amazon Prime membership, newspaper/magazine subscriptions, anti-virus software subscriptions, museum passes
- Children's classes/activities: Swim class, preschool
- Hobbies: Race fees, craft supplies
- Photography: Family pictures, photo books
- Education/Career Related: Tuition, books, CPA renewal fees
- Clothing Related: Dry cleaning, clothing purchases (although I use a fund to keep track of this-- we'll talk about this more next month)
- Miscellaneous: Hair cuts, stamps, credit score requests, will software, cash withdrawal
Now assign an amount to each expense. If you don't know the amount, estimate it. As you live with a budget, it will get more and more accurate over time.
Step 2: Divide the total of that expense for the year by 12 and put it into your monthly budget. If you're using our free Excel file, available on our Facebook page, you enter the amount for the year in the total column at the end, and the monthly amount will automatically populate into each month's budget. As you enter the actual amount each month, you'll see the actual total accrue in the total/actual column. If you are using Mint or Yodlee, I believe there is a "rollover" feature that you can use to rollover the unused amount in each budget to the next month. However, in the month when you do use the accrued funds, it will show you as "over" budget if you go over the monthly amount.
Step 3: Save that money each month so it's there to use when you need it. There are several ways you could do this. We send the amount we budget each month for irregular expenses to a separate savings account, and then transfer the actual amount spent on irregular expenses back into our checking account each month to make sure we don't "accidentally" spend that money on other stuff. I believe Lisa pays large irregular expenses out of that separate bank account directly. Or you could just hold your budget in the other areas and float the amount accrued for irregular expenses in your normal checking account (works better when you're not on a tight budget). We'll talk more about cash flow strategies with irregular expenses later in our budget boot camp.
Step 4: Refine over time. It's not going to be perfect the first time. It's a combination of both trying to live within your budget and improving your ability to forecast your spending as you continue to track it that will give you a workable and effective budget.
*I made up the 95 percent-- but seriously, it's got to be high.
Share- What are the random expenses that you always forget about in your budget?
And for the mom products I'm loving: Since we'll be moving to New York City in a few months, and space will be TIGHT, we put our baby in a pack 'n' play. The combination of this mattress pad (we're using the bassinet attachment, so we didn't want a thick pad that would make it too high) and these oh-so-soft crib sheets actually makes it a really great and comfy space.