How to plan for irregular expenses?
There are so many things that get in the way of trying to save or pay down debt. A common struggle is dealing with irregular or unexpected expenses. Often, people will say that they feel like their day-to-day spending isn’t bad, but that every month there always seems to be some surprise bill or expense that pops up. One month your dog may need stitches, the next month it's your annual car insurance bill that you forgot was coming up.
Our day-to-day expenses tend to be somewhat consistent each month, which makes them easier to anticipate and plan for. The irregular expenses, however, often feel like more of a surprise. If you find yourself constantly being caught off guard, you may benefit from spending time trying to anticipate your upcoming expenses.
Paycheck-to-Paycheck cycle
Many people, even many with high incomes, are stuck in a paycheck-to-paycheck cycle. They are constantly looking at what bills are coming up between now and their next paycheck, sweating that they may run out of money before payday.
For people in a paycheck-to-paycheck cycle, when they ask themselves “Can I afford this?” The answer is usually dependent on where they are in relation to payday. They tend to spend more freely in the days following payday. At this point, their checking account feels full, making it easier to justify spending or indulging. Then, when they are a few days away from their next payday, their account balance may feel uncomfortably low, resulting in more scrutiny for any non-essential spending.
When you are only looking at your current checking account balance to determine what you can afford today, you are failing to consider what’s on the horizon next month and beyond.
It’s hard to make progress when you can’t predict your expenses
If you have a goal of building up your savings or paying off debt, you may have an idea of how much you want to save, or how much debt you want to pay off each month. But if you are constantly being hit by unexpected expenses, it’s unlikely that you will be able to stick to your savings or debt payoff goals. Those consistent obstacles leave many people feeling discouraged and possibly feeling like there’s no point in even trying.
When trying to save, most people have great intentions of lowering their day-to-day expenses, aiming to have a little left over at the end of the month. But if you don’t have a fairly accurate understanding of what your cost of living is, it’s hard to make progress.
Having your day-to-day spending under control and to a point where it is relatively predictable, is a great start. But even when you have that, getting hit with surprising costs can still derail your progress.
Anticipate the “Unexpected”
While there are some truly unpredictable expenses that will pop up occasionally, most of the surprise costs are more of a surprise in terms of timing, and less a surprise that they happened.
If you own a car or a house, it’s naive to expect that there won’t be any repair costs in the near future. With that in mind, we shouldn’t be that surprised when something needs to be fixed. Sure, we may not have been able to predict what would break, or exactly when it would break, but we know that before too long, all cars, homes, or even our bodies, will need some expensive repair costs.
Here are a few questions to ask yourself to help identify potential costs you should be planning for:
What things do I own that require maintenance or occasional repairs?
How much did I spend on maintenance or repairs last year?
How much did I spend on medical expenses last year?
Am I planning any vacations?
What upcoming holidays, birthdays, or other milestone celebrations do I want to celebrate? And how much will it cost?
Are there any major purchases that I’ve been considering?
Do I pay any bills on an annual or semi-annual basis?
I’ve created the free Unexpected Expenses tool to help you visually map out the year ahead, helping to anticipate many of those irregular, but not entirely unexpected, costs.
Planning, not just for the boring stuff
While it’s really important to plan for necessary expenses, like repairs or medical bills, planning for things that bring you joy is also important. That dream vacation may feel prohibitively expensive, but if you create a plan to start saving for it months in advance, it becomes much more feasible.
By planning ahead, you can take time to think about the things that add the most value to your life and build those into your expenses. Often people say that they can’t afford things that they truly want, meanwhile, they spend a few hundred dollars a month on mindless Amazon purchases. Sometimes that mindless shopping almost feels justified, as a coping mechanism for not buying the bigger thing you really wanted. But often, if you create a plan to redirect that mindless shopping towards saving for the jacket you have been coveting, you’ll be able to responsibly indulge in the things you are the most excited about.
By building a plan for the fun things, you will be that much more likely to have the money available when the time comes. It’s more enjoyable to take a trip that you are able to pay for in full, than needing to put it on a credit card, knowing you will spend the next few months paying it (plus interest) off.
Don’t paint too rosy of a picture
While I’m all for optimism, it’s easy to be a little too optimistic when it comes to future costs. We assume our future selves will suddenly have their shit together. Surely, future-you won’t be susceptible to things like emotional impulse buys and parking tickets, right? If your plan for saving money is contingent on you perfectly sticking to your budget, you are setting yourself up for failure. We know that life is not going to go exactly as planned, so by building in some buffers for ourselves, we don’t have to feel too defeated when we are faced with some unplanned costs.
It’s time to save
Once you have an idea of what your upcoming irregular expenses are likely to be, you’ll want to create a plan so you are actually prepared for them.
A great way to do that is to create Savings Buckets. A Savings Bucket is a separate savings account that you open for a specific type of expense. You can then transfer money to that account each month, allowing the balance to slowly build. You are essentially set up an installment savings plan for yourself.
If you have multiple savings goals, you can open multiple savings accounts. By keeping each savings goal separate, it helps to clearly see how much you have available for each goal. Our mental accounting skills are not as good as we think they are. So if you just have one large “general savings” account, it's harder to contextualize the impact of spending on any one specific thing.
If I have $5,000 in a general savings account and want to spend $2,000 on an upcoming trip, is that ok? Or is that sabotaging my other goal of saving up for a new car? If I have separate savings buckets for each goal, I can more clearly see that I have $2,000 in my travel fund, $2000 in my future car fund, and $1,000 for anticipated home repairs. So yes, I can confidently book that trip!
Get started now
While you are never going to anticipate every expense, taking some time to map out MOST of them will help you be much more prepared when they inevitably come. Get your FREE access to the Unexpected Expenses tool to help you map out what upcoming expenses you want to prepare for.
