Planning and budgeting for the expenses that are ongoing can be simple and straightforward. We all have an idea of the amount we pay for our mortgage, rent, car payment, auto insurance etc. We can usually estimate our total grocery expenditures and know roughly what to expect on our utility bills.
But what about those irregular expenses? You know, the ones that are paid less frequently or might be unexpected. Some of these items may include: vacation expenses, IRA contributions, medical bills, vehicle maintenance or tax payments. Basically, any expense that does not fit into a set billing pattern would fall into this category.
To deal with these kinds of expenses you should have an effective plan in place. Set aside money for them to avoid a cash flow crisis. If it’s an expense you know is coming (like a tax or auto insurance bill) then you can break the amount into monthly chunks and set that amount aside to pay when the bill comes. For example: You have an auto insurance bill that comes every six months and it costs about $650. To be prepared for this expense you should be setting aside $108.33 every month into a fund for your auto insurance. If you do this faithfully you will never have to worry about paying that bill when it arrives.
If it’s an expense that you don’t expect (like a medical bill or car repair) then you have a couple of options.
- Pay with a credit card (obviously not ideal)
- Work out a payment plan
- Use your emergency fund – my favorite choice by a landslide!
An emergency fund is your ticket to staying out of debt. Most people don’t accumulate debt by living large and spending irresponsibly. Unexpected expenses are the common culprit for taking on debt. If you have a little cushion of money stashed away for those things that come along unexpectedly, you will stay out of debt and incur less stress along the way.
Not sure where to start? Set a goal for the year that seems manageable. ($1200 is a nice even figure). If you look carefully in your budget chances are you can find items that can be cut that will allow you to set aside $100 a month ($25 a week) in a fund that you DON”T TOUCH unless there is an emergency. If you do have to withdraw money from that account, you simply pay that money back to yourself as quickly as possible so your emergency fund isn’t depleted. And by the way, a shoe sale or your child begging for a new video game is NOT an emergency!
So what are you waiting for? Get started on that emergency fund today!