How to Budget for Irregular Expenses
Irregular Expenses Often Create Problems in Personal Budgets
If you stick to your budget each month but still seem to run out of money before the month is over, irregular expenses could be to blame. Irregular expenses are those bills that you only pay once a quarter, once a year, or on an as-needed basis. Because you seldom think about them, it's easy to forget about them until they’re due—and you have to scramble to come up with the cash to pay them.
Fortunately, taking the surprise out of irregular expenses is fairly simple. You just have to identify your irregular expenses, total their cost, and divide that total by 12 to turn them into a single monthly bill that you can include in your budget.
Ready to give your budget the update that it needs? Let’s take a closer look at how to incorporate those irregular expenses into your monthly budget.
Identify Your Irregular Expenses
Irregular expenses include any bill that is infrequent but easy to predict, such as insurance bills that you pay annually or twice annually. It could also include vet bills, certain types of subscriptions, and more.
Take some time to think about all of your expenses over the course of a year, and make a list of every irregular expense that you can think of.
Examples of Irregular Expenses
When sitting down and working to identify those irregular expenses, some may come to mind more easily than others. Consider these examples of often-forgotten irregular expenses:
- Charitable contributions
- Childcare or babysitters
- Car insurance
- Health expenses
- Home repairs
- Gifts for family and friends
- Tuition payments
- Vehicle registrations
Irregular expenses are more common than you may think. Learn more irregular expenses to watch out for.
Figure Out How Much They Cost
Now that you have your list, assign a cost to each item. In some cases, as with insurance, this will be as simple as looking up the premium. In other cases, as with home maintenance and gift spending, you’ll have to estimate a cost or set a budget for yourself.
Not sure what cost to assign to something? Look over last year’s bank statements or records to determine how much you spent.
Now, grab a calculator. Add up the cost of all of your irregular expenses and be sure to double-check your math. Then, divide that number by 12. The resulting figure is how much you’ll need to set aside each month to cover all of your irregular bills for a year.
Include that expense as a line item in your monthly budget, and treat it just like any other bill that you have to pay. You might even set yourself a due date as a reminder to pay it.
There's a chance you may underestimate the costs, or you may miss an expense or two. Consider adding 10% to the total as a buffer.
Where to Put the Money
To ensure that the money is there when you need it, it may be a good idea to set up a separate savings account for your irregular expenses. Then, you can move the money over to that account each month.
If you think you’ll be tempted to dip into the account for other things, consider opening an account at another bank, so it’ll be a little more difficult to access on a regular basis. Online banks work well for this, as do local banks with limited banking hours and fewer branch locations.
As your irregular bills come due, simply pay them from your new account, and enjoy having one less source of stress in your life.
If you're still feeling a pinch when it comes to paying for irregular expenses, consider setting up an automatic savings plan. Once a month, or with each paycheck, automatically divert a small amount of money to your separate savings account. If you never see the money, you likely won't miss it.
It will take a few months to build up the balance in your irregular expenses account, so if you have any big bills coming up soon, be sure to set aside extra money to cover them.
Bills change over time, so review your irregular expenses once a year, and make any necessary changes to your totals