Mastering your periodic expenses

A normal budget breaks down expenses into three categories: Fixed, Variable, and Periodic.

Fixed expenses are the easiest ones to grasp and usually the easiest to plan for. They happen regularly and are the same cost every time. Your mortgage payment is a fixed expense. Your car payment, insurance payment, and any other set, regular payment is a fixed expense. They’re easy to plan for because you know what they’ll cost and how often you’ll need to pay them.

Variable expenses are the biggest category. These include food, utilities, entertainment, and transportation costs. A variable expense occurs semi-regularly and the cost isn’t set. You don’t pay the same amount every time you shop for groceries, so the cost is variable.

You can plan for variable expenses by examining your spending over a period of time and creating an average for each category. This means that each individual payment might not hit the budget exactly the way you planned, but over time and multiple payments you’ll (hopefully) arrive at your estimate.

Periodic expenses, by comparison, are the trickiest expenses to plan for because while they occur regularly, they’re usually rare (maybe once a year) and can vary widely. Gift giving falls into this category, along with maintenance and repair costs for your home and automobile.

The easy way to plan

The problem with periodic expenses is that when we’re drawing up a budget we tend to forget to consider these costs. You don’t forget to account for your rent or your electric bill because you have to pay those every month. But if you’re planning in January you might forget that by the end of the summer you’ll need money to buy your kids back to school clothes and supplies.

It’s easy to forget about property taxes, car registrations, and the fact that your tires probably need to be replaced this year. So even though you’ve paid for these things before (many times) they can still sneak up on you and ruin an otherwise solid budget.

The simplest way to plan for a year’s worth of periodic expenses is to do a thorough inventory of all the periodic expenses you incurred last year. Any expense that isn’t fixed and isn’t accounted for in your variable category is periodic and goes in the pile.

Once everything is gathered, total up the cost of every expense and divide by 12. Now take that number and add it to your budget. This is the amount you need to save every month in order to cover your periodic expenses.

It’s an estimate, of course, so some years your periodic expenses might outpace your designated savings, and some years you might have money left over. Even if it’s not exact, at least you’ll never be caught unprepared by a periodic expense again. Happy budgeting!

Jesse Campbell is the Content Manager at MMI. All typos are a stylistic choice, honest.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.