There you are, living your life, budgeting your spending, getting your shit under control and then… bam. It hits you like a ton of bricks. And no, I’m not talking about actual bricks. I’m talking about a bill (let’s call it an irregular expense) that only comes around every 6 or 12 months that you completely forgot about.
So now what? Your budget is clearly busted.
How do you budget for irregular expenses?
What Constitutes an Irregular Expense?
Before we discuss how to budget for irregular expenses, let’s take a step back and define what an irregular expense is in the first place.
An irregular expense is any expense that either 1) does not occur monthly or 2) has a different balance due every month. Some of these bills fall into both of those categories (I hate those).
Some common examples of bills that do not occur monthly include:
- Car Insurance
- Life Insurance
- Homeowners Insurance
- Homeowners Association Dues
- Unexpected Medical Bills
- Dental Cleanings
- Utility Bills
I did not realize until I put this list together how irregular insurance really is.
So let’s group these expenses into categories and deal with each category directly.
Budgeting for Quarterly, Semi-Annual, or Annual Expenses
These are the bills that remain the same, but only come out once a quarter or once every six months. Budgeting for these expenses is actually fairly easy, but it takes some discipline on your part.
First, you need to have handy a list of all these bills, the amount owed, and when they are due.
Second, divide the bill by the number of months you need to save up the money for that bill. So for instance, our HOA bill is due every quarter and $148 is due. I would divide $148 by 3 to get $49.33.
Third, take that “monthly” amount and deposit it into a separate savings account every month. (If you use this link and sign up for a Capital One Savings Account, you will receive an extra $25 in your account).
Finally, the next time that bill becomes due, you simply withdraw the amount from your savings account and pay the bill. No sweat.
Budgeting for Variable Balance Bills
These bills are typically utility bills and grocery bills. With regards to utility bills, many providers offer an “equalizing” payment plan. Essentially, they will average out your bills for the past 12 months, then send you a monthly bill for the same amount each month. In winter months, where your heating bill may be higher, you would pay less. But in summer months where your heating bill is next to nothing, you would pay the same amount.
This is a great option for people that don’t have enough self-control to average those bills on their own. But if you do, you can simply average your bills the same way the power company would and deposit the extra amount into a separate savings account. Then you can tap that account when the bill becomes due and an extra balance is owed.
For grocery bills, the strategy is a bit trickier. We are struggling with this right now. Essentially we budget a certain amount each week to groceries and do our best not to exceed that amount. We use YNAB to manage our budget, which has been invaluable.
Budgeting for Surprises
You never know when you are going to have an unexpected medical bill, or your car battery dies, or your cat has to go to the emergency vet. But when those times do come, it is important to build up an emergency fund. Most budgeting experts recommend having at least $1,000 on hand in an emergency fund.
Since I’m self-employed, I prefer to have between 3-6 months of expenses set aside.
Once you’ve built up that emergency fund when those unexpected expenses come along, you will be prepared (and what a good feeling that is!)
How Do You Budget for Irregular Expenses?
What do you do to budget for irregular expenses? Do you have any special tricks or tools that you would like to share?
Please feel free to leave a comment below and let us know!