Use this System to Plan for Larger Infrequent Expenses
I made my first budget because I was spending way more than I was earning. I sat down and determined what I was going to spend each month in various categories like groceries, dining out, and transit, and I also included my monthly bills like rent, utilities, and the gym. I was really excited and proud. Now all I needed to do was stick with it. Easy, right?
Wrong.
It worked for a week and then I had to buy flights for a bachelorette which completely blew my total. I had to put them on a credit card. And then it was the holidays. And then I needed a haircut and a teeth cleaning. Time to pull money from savings. It felt like a big irregular expense came up every month and derailed my best intentioned saving plans.
How we traditionally set up spending plans doesn’t work because we aren’t accounting for the big infrequent expenses in our lives. Yes, there are things we can’t plan for (and that’s why we have our rainy day fund) but most of these expenses are things we know about or even things that happen every single year.
Why is this a problem? Not only does this way of spending keep us from planning and saving the way we want, it also makes our financial lives much more stressful. If I have to make a big expense in any given month, cash will be really tight and I’ll have to put the expenses on a credit card or pull money from savings. I have to spend the next month recovering (until another expense comes up!).
The good news is, I am excited to share a tried and true system to stop this spending and saving rollercoaster. Once you take the time to set it up, it will do the work for you and take the stress out of these larger more irregular expenses.
List out your larger infrequent expenses.
Start with a list. What are the larger infrequent expenses in your life? Some of the most common I see are travel (including weddings and bach parties), shopping (for those who do seasonal shops), tuition payments, camp, fertility treatments, taxes, the holidays, and moving expenses. Start with the next twelve months but the further out we plan, the less pain we feel so I’d definitely encourage planning for longer term expenses, too.
Open a dedicated online savings account.
I’m a big fan of having specific accounts for each expense so each dollar has a job. If you already have an online savings account, you can open up another account in there very easily and name it accordingly. If I’m putting money aside to prepare for a move, I’d name it something like “moving fund.”
Estimate the expense.
For some expenses, like tuition, we may know exactly how much they will cost. Others, like travel, we’ll have to estimate. Don’t let not knowing keep you from getting started. Do a bit of research, make your best estimate, and use that number for now.
What’s your timeline?
Some expenses will happen every year, so we can plan for them year round on repeat. Others are a one-time expense that will happen at a certain time. How many weeks, months, or paychecks do you have until you will want the money for each item on the list? For example, maybe I’m moving in a year but will have to put a deposit down on the movers in ten months. I’d have ten months to save up for this expense.
Set up an automatic transfer.
Then set up an automatic transfer to the dedicated online savings account for each expense. You can have it transfer every paycheck or if your rent or mortgage make cash tighter during a certain part of the month, you can schedule the transfers during the other half of the month.
Enjoy the money there waiting for you.
Now you get to sit back, relax, and have peace of mind that when it’s time to book a flight or pay your quarterly HOA fee, the money will be there waiting. You can transfer the money over to your checking account in advance of paying the bill, or you can put it the expense on a credit card and pay it off right away.
Adjust as necessary.
As you have more information about any of the expenses you were estimating, you can adjust the auto transfers to reflect that. This is something you can check in on every couple of months and then do a larger planning session once per year.