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Imagine that your car suddenly breaks down, and suddenly you find yourself facing a huge repair bill that you did not expect. It is a stressful and exhausting situation.
Irregular expenses, such as unexpected car repairs, unexpected medical bills or home maintenance, don’t follow a regular schedule and can put a real strain on your wallet if you’re not prepared. But by setting aside a small amount each month, you can keep your budget on track and avoid relying on credit when surprises arise.
Planning ahead can help you stay on top of your finances and avoid falling into debt no matter what. Read on to learn how to save for irregular expenses and build a flexible budget that takes these unexpected costs into account.
Understanding Irregular Expenses
Irregular expenses are those that don’t show up every month but can happen from time to time. Some are predictable — and some aren’t. They can be broken down into three types: seasonal, emergency, and one-time. Seasonal expenses include things like holiday gifts or summer vacations — they happen at specific times of the year, but not every month. Emergency expenses are those that are unexpected, like a car repair or a medical bill. One-time expenses are usually large, infrequent purchases, like a new appliance or paying for a major home renovation.
Unlike regular monthly expenses like rent, mortgage payments, or utility bills, irregular expenses can easily impact your budget and cause sudden financial stress. If you’re not prepared for these costs, you may find yourself relying on credit cards, which can cause you to take on more debt than you can afford.
Strategies for Anticipating Irregular Expenses
The good news is that you can prepare for irregular or unexpected expenses so you’re not caught off guard. To help plan for these expenses, keep a list of potential costs that may arise throughout the year. You can do this by reviewing your past spending. Look at your bank statements from the previous year to identify any irregular costs that have cropped up. Did you have to replace your furnace or pay for an extra dental checkup? Write these expenses down so you can budget for them in the future.
Another strategy is to create a calendar for your recurring, irregular expenses. For example, if your home insurance payment is due every December, mark that date on your calendar. That way, you can set aside money throughout the year until those payments are due.
Budgeting Techniques for Irregular Expenses
Managing irregular expenses can be challenging, but effective budgeting techniques will help you address these costs without going into debt or pulling money from your emergency fund. By planning ahead, you can minimize the impact of irregular expenses on your financial well-being. These budgeting techniques include:
drain box method
Savings funds are money you set aside each month for specific savings goals. To create a savings fund, prioritize some of your irregular expenses and calculate how much you’ll need to save each month to cover those costs when they arise. Keep this money somewhere that’s easy to access but not too tempting to spend. A high-yield savings account is usually the best option since you can link it to your checking account for automatic monthly transfers, plus it will earn you interest. You can also create sub-accounts through online banking and give each one a nickname based on your goals.
While you can create a savings fund for any irregular expenses, be careful not to keep too much of it. You will need to balance your savings goals so that they fit within your current budget. Remember, you should first calculate your regular expenses (such as utility bills, rent, etc.).
envelope system
The envelope system is a cash approach to budgeting that can help you better track your spending. Basically, you put cash allocated to each expense category into separate envelopes. Each envelope becomes your spending limit for that expense. Once the money in the envelope runs out, it’s gone until the next month.
This system can be easily modified to handle irregular expenses. To get started, determine how much your irregular expenses are and when you expect them to happen. For example, if you know your car insurance will cost $600 in six months, set up an envelope specifically for that. Then divide the total cost by the number of months until the bill is due—in this case, $100 per month. Put that amount in the envelope each month so you’re prepared when the bill is due.
Automated saving
If you don’t want to set aside separate funds for each irregular expense, consider creating a single savings account for all of these costs and automating your contributions. By setting aside a small amount each month, you’ll build up a fund that can cover any unexpected expenses when they arise without putting too much strain on your budget.
To budget for irregular expenses this way, start by calculating how much you’ll need in a year and then divide that amount by 12 to set a monthly savings goal. For example, if you think you’ll need $1,200 a year, try to save $100 each month. You can also consider setting aside 1-2% of your monthly income if that works for you. Be sure to monitor your savings and adjust as needed.
Tools and Resources for Managing Irregular Expenses
Instead of trying to scrape together money at the last minute, creating a budget can help you prepare for unexpected expenses. There are many online budgeting tools and apps that can help you create a realistic spending plan, including Credit Canada’s free budget planner.
When creating a budget, you’ll need to break down your expenses into categories: regular expenses (mortgage, rent, utility bills, groceries, gas) and irregular expenses (car repairs, home maintenance, vet bills, gifts). Not sure what these expenses might end up costing you? You can use an online calculator, like our comprehensive expense tracker, to help you estimate your savings needs for irregular expenses in the future. Once you have a budget, you’ll be more aware of how you spend your money, which will improve your ability to manage expenses and achieve your financial goals.
Practical tips to stay on track
To stay on track with your budget, make sure to review and adjust your savings regularly when new, irregular expenses arise. It’s important to prioritize building an emergency fund and a contingency fund — that way you’ll be covered for those irregular but expected expenses, as well as unforeseen emergencies. Resist using these savings for any other expenses by setting clear rules about what counts as an emergency. Remember, a budget only works if you stick to it!
