Don't get caught off-guard by "abnormal" or unusual expenses like replacing a car, buying a new refrigerator, or paying for a wedding.
Yes, these expenses are outside of your normal routine, and slightly unpredictable in terms of exact timing. But you can still make these an integral part of your budget.
Here's how in just 4 steps.
Step One: Track Your Monthly Spending
Many people have no idea how much they spend each month. These nifty budget worksheets are your best friend. They'll help you follow where every dollar goes.
Step Two: Track Your Annual Expenses
You'll have to pay some bills just once or twice a year - like doing your holiday shopping, getting your teeth cleaned at the dentist, and paying your property taxes.
Save for annual expenses all year long by figuring out the total amount you'll spend in a year, and dividing that by 12 to discover your "monthly" budget for that item.
For example: If you spend $120 per year on Christmas presents, your monthly budget is $10 per month.
Move that money (in this case, $10 per month) into a savings account that's specially marked for "holiday gifts." Several banks let you create "sub"-savings accounts that you can earmark for certain savings goals.
You could also withdraw that money (in this example, $10 per month) from the ATM and keep it in an envelope earmarked for that purpose. Just be sure you stash that envelope somewhere safe and aren't tempted to use the money on other things.
Step Three: Track Your Once-A-Decade Expenses
Big bills pop up when you least expect it. You'll need a new computer. Your home will need a new water heater, new carpet, and a new roof. You'll need a new mattress and some furniture. You'll want to replace your television set.
Rather than financing these things, why not "make a payment" to yourself each month?
Calculate how much the once-per-decade item will cost. Divide that by your time frame. This is the amount you should "pay yourself" each month.
For Example: Four years from now, you want to buy a $10,000 car. This means you need to save $208 per month for the next 48 months.
To do this, set up an automatic monthly transfer of $208 from your checking account to your savings account.
Of course, save for other goals as well—$50 per month towards a vacation, $25 per month for a new washer and dryer—so the total you're transferring to your savings account is substantial. It's hard to see what money is designated for what purpose.
That's why banks that offer "sub"-savings accounts are so handy. If your bank doesn't offer this, track each savings goal on a spreadsheet or use an online tracking tool like Mint.com.
Step Four: Track Your Once-In-A-Lifetime Expenses
Sorry, you're not off the hook yet. The biggest bills you'll ever pay are your once-in-a-lifetime bills: College tuition. Your wedding.
Save for these by anticipating how much it will cost, and divide that amount by your time frame.
For Example: You want to contribute $50,000 towards your child's college expenses. Your child is currently 6 years old. Your child will probably go to college 12 years from now, which is in 144 months.
$50,000 divided by 144 equals $347, which means you should save at least $347 per month in a college fund.
But remember: 12 years from now, $50,000 won't have the purchasing power it has today. Raise your contribution at the rate of inflation to compensate for this.
For Example: This year you contribute $347 per month toward Junior's college fund. Inflation rises roughly 3 percent a year, so next year you multiply $347 by 1.03. The result equals $357 - an increase of $10 per month.
You spend the second year contributing $357 to Junior's college fund. The year after that, you contribute $367 each month ($357 multiplied by 1.03). The following year you raise your contribution to $378 per month.
Feeling overwhelmed, like there's too much to save for? Try and take things one step at a time. Remember, most of these are long-term expenses—you have years to save up for them!