3 Ways to Keep Irregular Expenses From Wrecking Your Budget
from daveramsey.com on 06 Feb 2014
If you’ve resolved to take control of your money in 2014, congratulations! You’re headed toward an awesome destination: the peace that comes from living and giving like no one else.
As you start your new financial journey, don’t forget to tell your money where to go. That means you need to make a budget! If you’re new to budgeting, we have some tools that will help. This simple tool will help you decide how much you need each month to cover your Four Walls (food, shelter and utilities, clothing and transportation).
If you’ve already done your first monthly budget, how did it go? Did you remember to account for all your household expenses? After all, nothing can wreck a budget faster than a large expense that comes once or twice a year and hasn’t been accounted for. Ouch.
Thankfully, with a little extra planning, you can stay on track and win. Here’s how.
Chart your course
You wouldn’t set out on a long trip without mapping out your route first, would you? So why wouldn’t you map out your plan for your money? Sit down with a calendar and your spouse or accountability partner and list any irregular expenses you expect this year. You might include:
- Insurance premiums
- Car tag renewal fees
- Back-to-school supplies
- Christmas gifts
Then, write down the amount needed and when payment is due for each expense.
Figure out your schedule
Now that you’ve determined what’s coming, it’s time to add those expenses to your monthly budget. For each expense, divide the amount needed by the number of months until payment is due. Then, add the result to your monthly budget.
Let’s try an example. According to bankrate.com, the average annual premium for car insurance is $762. If you start saving in March and your semiannual payment is due in July, you have four months to get your payment together. Divide the amount needed ($381) by the number of months you have to save (four), and you’ll see that you need to save $92.25 per month to have your premium payment by July. This is called a sinking fund, and you can use this technique to save up for any large purchase or expense!
Pack light and go full speed ahead
Have you ever noticed that the lighter your load, the easier it is to get where you’re going? The same applies to your financial journey. The smaller your expenses, the farther your money can go—and in less time! So why not look for ways to cut your costs down to size?
For example, quarterly or semiannual insurance premiums can feel like a massive weight if you don’t plan for them. But they’re also a great opportunity to save. Take it from Michael in Nebraska. He trimmed an extra $700 from his annual home and auto insurance costs after working with one of Dave’s Endorsed Local Providers (ELPs). And he’s getting better coverage! Just think how much momentum you could gain by shedding that kind of payload.
Planning for irregular expenses is one of the toughest parts of budgeting. But with a little practice, it'll become second nature. If you'd like to add some extra cushion to your budget, try talking with one of Dave's insurance ELPs to see how much you can save.