Some household expenses come every year—whether you’re ready or not. For example, both holiday and tax debts are periodic, meaning they are not part of regular monthly expenditures. In that regard, they join the ranks of other expenses such as auto registrations and vacations. Often, we know when these events will occur, but still fail to plan for them. Unfortunately, when these expenses arise, many people rely upon credit to extend their monthly incomes; using credit this way is one sign of pending financial trouble. To avoid this scenario, follow these tips when planning for periodic expenses:
Determine what you spent last year for periodic expenses
Assume that you will spend close to the same amount this year. Use this Expense Tracker to get started.
Don’t hide expenses
Just because you don’t list an expense doesn’t mean you won’t have to spend money on it. Don’t forget things like back-to-school expenses, auto repairs, routine maintenance, and birthday gifts. Remember that some items, like auto insurance premiums, may occur more than once a year.
Expect the unexpected
Cushioning your savings account for those “unplanned” expenses can make the difference between a minor financial setback and a major financial disaster.
When you have a realistic idea of what you will need to spend on periodic expenses during the year, divide the total amount by 12 and save that amount each month. Designating a savings account for this purpose may help to organize this process. Check with your financial institution, you may be able to have the amount automatically transferred to save you the hassle.
Accelerate your savings schedule by including all of your "windfall" money. This “free money” includes increased income from a pay increase, birthday gifts, insurance settlements, escrow overages, and inheritances. Since this is extra money that you don’t normally rely on, you won’t miss it if you deposit it directly into your savings account.
Finally, don’t forget to revisit your overall spending plan several times throughout the year to make sure you are on track. Common sense and flexibility are important keys to financial success.