Life is full of surprises, some good and some, well, not so good. Finding out you are becoming a first-time grandparent is a wonderful surprise. Finding out that you need to pay for your child’s $400 summer camp bill today is a not so great surprise.
Irregular expenses do not always have to be extravagant expenses. Sometimes, they are just simply your biannual oil change or your parent’s birthday present. These expenses could be once a year, once a quarter, or randomly throughout the year.
Whether these irregular expenses are large or small, it’s vital that you are prepared to cover the bill.
Take time to review your checking account, credit card statements, and saved receipts for the many irregular expenses that you have encountered over the past year. Vet bills, haircuts, birthday presents, home related purchases, and charitable donations can be considered irregular. Make a list of all of these items and their relative costs. Be sure to add in any other expenditures that come to mind for the year ahead.
With that said, it’s also a great time to review what you are spending your hard-earned money on. It may be that some of these expenses are unnecessary, or worse, blowing your budget. However, many of them may be unavoidable. Whatever it may be, take a few moments to evaluate each expense and its necessity in your life.
Define and Build a Budget
Now that you have identified your irregular expenditures, tally up all of these bills and purchases. Once you have a total, you can fully understand the amount that you are spending annually on these various items and build your budget. Take this annual figure and divide it by 12. This is the amount that you should be allotting yourself each month for these expenses. If you are creating this budget midway through the year, be certain to account for this when building your budget. It may be that you need to divide by 6 or 10 rather than the standard 12 months’ timeline.
It is imperative that you stay current with your irregular expenses. Consider reviewing this budget annually as expenses are everchanging. Compare your next year’s expenses to current year to calculate the potential increase or decrease in irregular expenditures. You’ll need to adjust your monthly allotment if your irregular expenses change.
Open Separate Account and Upkeep Funds
Lastly, it’s time to consider a separate account where you can pay these expenses from. You’ll now have your fixed monthly expense funds in one account and your irregular expense funds in another. The constant worries that either account will overdraft will be no more.
To build the funds in this account, you’ll take the defined monthly amount and set up a once-a-month automatic transfer to this new account. Keep in mind that it will take a few months to build the balance. Be especially attentive during this time and move extra funds if there will be a larger expense occurring closer to inception of the account.
In addition, it’s wise to also evaluate your emergency fund for those extravagant surprise expenses. Always make sure that your emergency savings has the funds to cover up to 6 to 9 months’ worth of expenses.
Preparedness to handle irregular expenses ensures that you are in a fiscally responsible mindset. As discussed, these irregular expenses may be reoccurring bills or are expenditures that may pop up out of the blue. Regardless, having a plan in place to identify expenses, build a budget, and properly manage these expenses will set you up for financial success. Take the time necessary to understand your current financial situation and your many irregular expenses—and take back control of your money.