Non-Monthly Items
If you are like most people, at some point over the year, you will be faced with unexpected expenses that may bust your budget. Have you ever experienced an emergency where you did not have money set aside to pay for, perhaps a tire blowout, hot water heater repair, fence blown down during a storm, or your dog that gorged on the dark chocolate bar hidden in your child’s Christmas stocking which required an overnight stay at the pet hospital? Unplanned expenses are part of life, because, life happens…
No one expects the unexpected. And when it comes to our finances, unexpected expenses can quickly become a budget buster which leads to us making poor decisions with our money. At some point, we all experience life’s emergencies.
Non-recurring expenses CAN destroy a budget, but they don’t have to. With proper planning, we can face these expenses with peace and a sense of control when they do occur. By building them into our monthly budget, we can reduce the stress and anxiety caused when they occur.
You may be thinking, ‘I can’t plan when my car is going to break down, or will have a medical emergency, or a death in the family that requires purchasing airline tickets for the entire family.’ But, actually you can. You can build these types of non-recurring expenses into your budget so you already have money set aside when they DO pop up.
Let’s think of some non-recurring expense that occur during the year:
– Christmas: it comes around every December 25th
– Back to school – that one comes around every August
– Car Maintenance (Oil changes, tune-ups)
-Car Tax and Registration
-Income Tax owed
-New Tires for the car
– Insurance Premiums that are paid annually or semi-annually
-Vacation
There are also non-recurring expenses that may come around only every 5, 10, 20 years like:
– College tuition
– Replace a Car
– New Roof
– Replace HVAC system
– Daughter’s Wedding
– Dream Vacation
We can plan and save for these expenses so they don’t impact our $1,000 emergency fund. Then, when they happen, the money is there to pay for them.
So, how do we budget for both near term (those coming in the next year or two) and longer term (those 5+ years out) non-recurring expenses?
1. First, you need to identify how much money you will need for each item. Review your checkbook or bank statements for the past year to ensure you capture those expenses you may have forgotten about.
2. Then determine how much you think you need to save for each of those longer dated expenses (like a new car)
3. Next, determine how many months until you need that money. We have a non-monthly expense document that you can download from the Resource section to help you with this.
Here’s an example:
Let’s say we are in January. You know you will need $250 in August for back-to-school expenses. August is 7 months away. Divide $250 by 7 months and you will need to save $36 per month each month until August. When August rolls around, you will have $250 to use for school supplies.
Many people find it best to move these non-recurring budget savings into separate accounts. You may want to have a “Near Term” account for the shorter term non-recurring expenses (car maintenance, Christmas) and another account for Long term expenses (such as new roof or car replacement). These are separate accounts from your regular checking account as most of us spend the amount of money we have in our checking account.
Building non-recurring expenses in our budget helps to:
-break down large expenses into manageable ones
– ensure we can actually afford our lifestyles choices
– have the money available when those non-recurring expenses occur
You don’t have to be anxious about non-recurring expenses. By planning and saving, you can build margin into your monthly budget which will allow you to manage your budget with confidence and freedom from debt.
In the upcoming video, we will learn how to build a budget to help us reach our financial goals.