Irregular expenses are those pesky bills that don’t come monthly. You know some of these expenses are coming – like semi-annual auto insurance or an annual donation to a charity. For other irregular expenses, you might have an idea that they’re coming, but don’t know when or for how much. This might include car maintenance or medical bills.
Just a single irregular expense can throw off a budget. But there are ways you can reduce the impact of these items. Read on for tips to stop irregular expenses from derailing your budget.
What are my expected irregular expenses?
Expected irregular expenses are those items that are guaranteed to hit your budget this year. Take a moment to think about what these are for you. Because these don’t happen regularly, it can be hard to remember these expenses. To help you get started, here are the expected irregular expenses I’m budgeting for this year:
- Auto insurance
- Home insurance
- Personal property tax (if you live in a state with personal property tax, this can be a big annual expense)
- Donation to the college I attended
- Subscriptions (AmazonPrime, SiriusXM, etc.)
- Dues (clubs and volunteer organizations)
- Travel (my family lives all over the U.S., so I know I’ll have traveling expense to visit family this year)
If you want to be really specific, you can take a look at your purchase history with your bank or credit card company to identify these expenses. See Easy Budgeting: How to Use Past Purchases to Create a Budget for instructions on how to download your purchase history.
What are my unexpected irregular expenses?
This might seem like an odd question – if it’s an unexpected expense, how can I know what it is?
When I first starting using a budget, there was always some type of expense that came up during the month that was unexpected. But after awhile…if there’s an unexpected expense every month, is it really unexpected?
I started looking at these “unexpected” expenses and realized that these expenses related to events that weren’t as unexpected as a I thought. One example is car maintenance – at some point in a car’s life, it’s going to need maintenance. Another example is medical expenses – during the course of the year, I’m probably going to see the doctor.
While insurance might pay for the major car and medical bills, there are some expenses that are going to fall on you. If you plan ahead for these types of unexpected expenses, you have a better chance of meeting your budgeting goals.
Here are the unexpected irregular expenses that I plan for in my budget:
- Car maintenance
- Medical bills
- Gifts (this might include gifts for baby showers, weddings, or other events that pop up during the year)
I also have a separate budget for an Emergency Fund to capture something that completely comes out of left field.
How do I budget for irregular expenses?
For big ticket items like college or your first home, we save and regularly set aside money to prepare for these expenses. We can do the same thing for the less major expenses, like home insurance and charitable contributions.
Each month, include a portion of the irregular expenses in your budget. You’ll save and set aside these amounts every month until it’s time to make the payment for the irregular expense. When it’s time to make the payment, you’ll have set aside enough money to make the payment in full. Because you’ve broken-up the expense across several months, your budget doesn’t take a huge hit from the expense. This increases your chances of sticking to your budget.
How much do I budget for expected irregular expenses?
Our goal is to change these irregular, non-monthly expenses into monthly, regular payments.
First, tackle the expected irregular expenses – the expenses you know are coming and you know the cost:
- Determine how much the expense will be.
- Determine the number of months between payments (annual=12 months, semi-annual=6 months, quarterly=3 months).
- Divide the expense by the number of months between payments. This will be your monthly budget amount.
Here are a couple of examples:
TABLE 1: Calculating Monthly Budget for Irregular Expenses
If you’re just getting started with your budget, or forgot to include an irregular expense, you might not have the full payment period before your next payment. Take the example of the auto insurance. You create your first budget on March 1st. Your next auto insurance payment is due July 1st. That means you’ll only have 4 months to budget and save before the payment is due. In this case, you’ll want to divide the expected cost by 4 months so that you have enough set aside to cover the full payment when it’s due.
How much do I budget for unexpected irregular expenses?
Although you can anticipate some of these unexpected expenses – like medical bills or car maintenance – it can be hard to anticipate the cost.
To help figure out what to budget here, you can look at your payment history with your bank or credit card company. You can look back at several months or even years of payments to see how much you spend in different categories, including unexpected costs. See Easy Budgeting: How to Use Past Purchases to Create a Budget for instructions on how to download your payment history.
You can also just make an educated guess. Even if you don’t set aside quite enough to cover an unexpected expense when it comes along – at least you’ve set aside something. And you can adjust your budget going forward so that you’re even more prepared in the future.
Once you’ve determined the costs, you can follow Table 1 above to calculate the monthly amount to include in your budget. Since you don’t know when the cost will come, I use 12 months to calculate the monthly budget amount.
What if I didn’t budget enough for irregular expenses?
A budget is a work in progress – and it’s hard to get it right. But don’t give up on it! Keep adjusting the budgeted amounts until you get a budget that works for you.
To help cover you in situations where you didn’t budget quite enough for irregular expenses, I suggest having an emergency fund. The emergency fund can cover you if you didn’t set aside enough in one of your irregular expense categories.
Advice varies about how much you should set aside in your emergency fund. I like to keep 6 months of my “necessary” costs saved in my emergency fund. These costs are things like my mortgage, utilities, groceries – the expenses that absolutely have to be paid. If an unexpected expense drains the rest of my monthly budget, I have enough set aside to cover these necessary costs.
What do I do with the money I’ve set aside for irregular expenses?
Each month, you’ll set aside some money to cover future irregular expenses. You can move that money into a savings account each month to earn interest until it’s time to make the payment. You’ll want to use a savings account that allows you to transfer funds fairly quickly. You don’t want to get a late fee because you’re waiting on the funds to transfer so you can make the payment on the irregular expense.
And then…celebrate!! By budgeting for irregular expenses, you increase your chances of creating a budget that works for you. That puts you one step closer to financial freedom and meeting your financial goals. And that is definitely worth celebrating!