Life can be unpredictable. Here's how to plan for the expected and the unexpected.
Forget to save for holiday gifts? Didn't plan ahead for a trip? Don't stress, it happens to everyone. Not being prepared for expenses you know are coming up, or the unexpected ones that pop up, can put your budget way off track. It's a moment we've all felt - when you feel like you're taking a financial step backwards by dipping into the emergency fund you've worked so hard to build up, or putting that big expense back on a credit card you finally just paid off.
Although life is unpredictable, there are ways to plan ahead so you can avoid budget derailments you might have experienced in the past, and feel more prepared for a future financial curve-ball life may throw your way. The key is looking ahead to upcoming expenses, calculating what those might be, and saving a little bit each month leading up to that point, starting today. That way, the money will be there when you need it.
Plan in advance by saving a little each month for expected and unexpected expenses to avoid a financial pinch down the road.
- Step 1: Think through your "non-monthly" expenses.
These are expenses that don't happen every month, but you know they are expenses you will have eventually, in the short or long term. Things like an upcoming destination wedding, holidays, or a car/home repair. List them out for the next few months, or through the upcoming year. The farther out the planning, the better.
- Step 2: Think about how much you'd like to have, or know you'll need, for each of these expenses.
Capture that amount next to each "non-monthly" expense.
- Step 3: Take the total of your "non-monthly" expenses, and divide each one by the number of months until you'll need the money.
This will give you the amount you'll need to save each month to be prepared for this expense when the time comes. *For example, $600 for holiday money would be $50 a month if you start saving in January ($600/12 months = $50).
Creating bite-size savings goals for expenses you know are on the way will help remove unnecessary stress around those expenses when they arrive.
Here are a few examples of common non-monthly expenses to start thinking about and planning for, starting today:
- Your vehicle:
There are many expenses for your vehicle that could be spread throughout the year like your registration fee , oil changes, rotating tires, or any other regular maintenance. Don't forget "stuff happens", which is where your emergency fund can really save you (see below).
- The holiday season:
Think Christmas money for gifts, travel to and from family, extra spending cash to go out with old friends, hosting holiday gatherings, and any other traditions you might want to contribute to. As with many things, you'll likely end up spending more than you planned; remember this when determining how much to set aside each month.
- Your emergency fund:
Ideally you have 3-9 months of essential living expenses set aside in cash for the unexpected. While "non-monthly" expenses are those that are expected, an emergency fund covers your budget for unexpected expenses that pop up like home repair, car repair, medical expenses, and losing your job. Saving a little each month is a great way to build your emergency fund, and avoid the stress that comes with not being prepared for the unexpected.
Think about what expenses you have in the next 12 months that you can start saving for today, and an emergency fund amount you'd like to have on hand, and decide how much you'd like to set aside each month.
Fill out this budget worksheet with a three month average of your variable expenses (a.k.a. everyday living expenses like groceries, entertainment, dining out, and shopping.) This will give you a baseline of where your money is currently going, help you map out how much you can save for non-monthly expenses, and determine how much you want to shoot to have in an emergency fund.
Finally, check out some ideas on changing your spending habits to create more room in your budget to contribute to your non-monthly goals.
Adjusting your budget to plan throughout the year for the expected, and unexpected, can help life go right. By planning in advance, you can feel great about being prepared for the expenses that you know will inevitably come your way, and take those expenses in stride as you continue on your financial path with less stress and more success.