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Money Management International Improving Lives Through Financial Education
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Don't let periodic expenses be budget breakers

MMI Copywriter

By Kim McGrigg, MMI Community Manager

You may have a good idea of where your money is going on a day-to-day basis, but before you start working on a spending plan or budget, it is important to call attention to the number one budget breaker: periodic expenses.

Periodic expenses are those that are not paid on a regular monthly basis. 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, it is known when these events will occur, but many 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 sure sign of impending financial trouble. To avoid this scenario, follow these tips when planning for periodics:

  • Determine what you spent last year for periodic expenses. Assume that you will spend at least the same amount again this year.
  • 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, and birthday gifts.
  • Remember that some items, like auto insurance premiums or property taxes, may occur more than once a year.

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 the process. Check with your financial institution, you may even be able to have the amount automatically transferred.

Here are a couple examples of periodic expenses that can significantly impact your monthly budget:

Annual auto registrations
Assume your annual auto registrations cost $800/year. How much should you budget each month to cover this expense (even if you don’t have to pay it monthly)? $800/12=$67/month

Property taxes
If you own a home, assume your annual property tax bill comes to $1,200. This sum may be due only once a year, but you should be putting away an amount each month to pay these taxes. $1,200/12=$100/month So, to be prepared for these annual expenses, you must put the calculated amounts into a savings account, or into an “auto registration” or “property taxes” envelope, each month. That way, you will not have to rely on credit or depleting your emergency savings when the bills come due.

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Any life change can be hard on a family budget, even if it is a happy event like the birth of a child. Regardless of the current situation and solution, approaching the issues honestly and openly gives you a much better chance at maintaining strong, healthy financial relationships. Learn how to set a foundation of good personal finance skills—no matter what stage of life you’re in.

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Five things to know about household finances

 

Home is much more than just the four walls that hold a roof over your head. Home is your base of operations; a place to retreat, think and make plans for the future. As the foundation of your financial life, it is important that your household’s financial house be in order.

Whether you’re developing a plan for the first time, or dealing with an unexpected change in financial circumstances, it’s essential that you and your family understand your situation and establish short and long-term goals. Understanding household finances gives each family member increased confidence and steadies nerves in the event of a financial crisis.

Here are five factors to consider when reviewing household finances:

  1. Prepare for Emergencies -- Establishing an emergency fund should be your top priority. Having money for “unplanned” expenses can make the difference between a minor financial setback and a major financial disaster. Most experts recommend that you save about three to six months’ worth of living expenses.
  2. Evaluate Needs and Wants -- Creating a list that clearly defines needs and wants can help you establish your financial priorities. Some household expenses occur infrequently, while others come in regular intervals. Carry a pocket-sized notebook with you and write down every purchase. After two weeks, review your notes and decide if you really need all the things you buy.
  3. Understand and Control Credit -- Credit is often considered negative; however, most of us need to use credit at some point in our lives. Not all credit is created equal, and it’s important that you use credit wisely – especially credit cards – to avoid unwise debt. Understanding credit card agreement terms will help you evaluate your options so you can choose what’s best for you.
  4. Account for the Costs of Owning a Home -- When you first bought a home, you probably discovered hidden costs you never thought about when you were renting. Owning a home means that you are responsible for all maintenance and repairs. Every year, you should expect to spend some money on routine maintenance, so make sure your emergency savings fund can account for unexpected repairs.
  5. Get the Family Involved -- All members should understand the family’s financial situation, and a family meeting is a good place to start. Before the meeting, do some analysis to determine the current situation. If an event has occurred that will require major changes in spending, having some information about what should change would be a helpful starting point for discussion.

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.


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