Have you ever done something and thought, Holy cow! That makes life so much easier. Why didn’t I do this all along? Truthfully, I’ve thought it many times about all sorts of things including parenting, housework, cooking, and even budgeting. Budgeting is not often fun because it requires brain power and usually sacrifice. After working hard all week, the last thing you want to do is sit down and work through a budget. But…budgeting has saved our butts so many times, and I’d like to share one of the very best budgeting moves we ever made. Ever!
Unexpected and Irregularly Occurring Expenses
Unexpected expenses are killer! But almost as awful are expenses we know we have but forget about.
You know the ones: the ones that don’t occur every month like clockwork. It’s the things like car insurance and tags and termite inspections.
None of these things we want to have to deal with and would rather put completely out of our minds. Truthfully, most of us do put them out of our minds–outta sight outta mind. It’s not intentional, but it’s not regular, so it slips our minds and then when they do come due…oh, my!
Panic sets in and you wonder how you are going to scrape up enough money to pay these expenses because most of them are pretty hefty. For us, in our days before Dave Ramsey and really budgeting, we’d have to raid our savings account, praying the whole time that there would be enough money in there to cover the expense or slap it on a credit card. What choice did we have?
For years, we counted on our tax return to bail us out. I’m not proud of that, but it’s how it worked. That’s until we got a grasp on what budgeting really is and how it leads to freedom rather than bondage.
The Best Budgeting Move Ever
I admit, probably the absolute best move with managing our money was looking to Dave Ramsey in the first place. He tells you to get an emergency fund of $1000 as quickly as possible. I talked about that in this post and this one.
Thankfully, when we started our total money makeover with Dave Ramsey, he says to lay it all out on the table. All of it–even those expenses you don’t think of regularly and deal with them. Besides having $1000 in savings for when emergencies arise–and ya’ll, they will–this was the best budgeting move we have made to date!
Lay it all on the table
What I mean is we listed every expense, those occurring regularly, those only quarterly, and the ones occurring only yearly. Monthly expenses are a little more obvious because you deal with them all the time! You aren’t likely to forget those, though they need to be budgeted for too. My focus today is to share how to prepare for those less frequent expenses.
First, list them.
Each one. If it’s something you have to pay for (not talking about escrow here) out of your own pocket, list it. It could be auto insurance, life insurance, car tags, exterminating services, garbage pickup, termite inspection, or anything else that you don’t pay monthly.
Next, break it down.
Figure out how much each expense would be if you paid it monthly.
For example, our garbage pickup is billed quarterly. If it’s $45 for a quarter, just divide that by 3. You need to budget $15 a month for trash pickup.
Same with auto insurance. Some insurances you pay by the month, some by the quarter, some every six months, and some once a year. I get it: it’s cheaper up front to pay by the month, but you will pay more if you choose that installment plan. Same goes for life insurance. *Consider paying yearly or at least every six months.*
If your auto insurance is $900 every six months, then divide by 6. You need to budget $150 a month for auto insurance.
That’s easy peasy, right? So do that for every single bill/expense that’s not a monthly expense. Then you’ll add up what the monthly amount for all of them are. See my example below:
Be sure to factor in the exact amounts or round up; do not round down! You want to be sure you have enough money when the time comes to pay the bill. (That’s why I gave you some wonky numbers.)
Now, what do you do with all that money each month?
Open a savings account for just these expenses–only these! Nothing besides this goes in, and nothing comes out except to pay these bills. No exceptions!
How you decide to break it down further is up to you. Maybe you want to divide the $223.50 into 4 if you get paid weekly, or 2 if you are paid biweekly, or not at all if you are paid monthly. Personally, even though our income is biweekly, we still choose to dump the whole shebang into the account at one time. We do it on the week that has less other expenses coming out. It works for us.
It’s an expense just like everything else.
How you do this part is up to you, but in order to have financial freedom, this is imperative! You list that transfer to the other account along with your other monthly bills, and know that you have to do it. Every single month, transfer the money to the account and leave it alone until it’s time to pay one of those irregular expenses.
What we do at that point is simply transfer the money back into our main checking account and pay the bill. It’s that easy.
Last week we got our auto insurance renewal and our life insurance premium due notice on the same day. Before learning how to budget in this way, I would have panicked. Full-blown panic. But not now. I was actually excited that I could pay the bills freely. The money was there, planned for, waiting. And it felt freeing to know that I could simply transfer and pay.
Maybe just starting this up seems impossible, and maybe it is–right now. But work towards it–baby steps. Save what you can save and tackle it as best you can. Consider using a tax refund or a bonus check or birthday money or any “extra” money to get ahead so that you can get on track and ward off any surprises in your budget!