How to Make Irregular Expenses Regular

How-to-Make-Irregular-Expenses-Regular

Photo courtesy of thematthewknot

A little while back, I shared my system for budgeting without actually sticking to a budget. It’s my way of staying on track with my savings goals without stressing out about how every single purchase fits into my plan.

A big part of that system is making sure that I can handle the irregular but expected expenses that pop up from time to time. Whether it’s a flat tire or a last-minute trip I’d like to make, I don’t want to have to worry about fitting those kinds of things into a “budget”, and I don’t want to stress about whether the money’s there when I need it.

I also don’t want to have to tap into my emergency fund, which is only there for real emergencies (like losing a job), not things I should be anticipating as part of everyday life.

So how do I handle those irregular expenses with minimal effort and minimal stress? By making them a regular part of my monthly plan.

Here’s how you can do it too.

Step 1: Make a top-of-your-head list of common irregular expenses

If you already track your spending, you can use those numbers to identify what kinds of irregular expenses you have on a regular basis.

But if not, don’t worry about all that yet. The most important thing is to just get started, so take just a minute or two to jot down at least a few of your most common irregular expenses.

Here are a few to consider:

Do you have a car? You’ll need money for car maintenance.

Do you own your home or are you responsible for any repairs on your rental? You’ll need money for home maintenance.

Do you ever go to the doctor? You’ll need money for your medical care.

Do you like to travel? Do you buy people gifts? Those things require money too.

This list doesn’t need to be complete. Whatever you come up with off the top of your head is great. And no matter what, I would add a “miscellaneous expenses” category to cover everything you don’t have on the list. I’ve been doing this for years and I still have a “miscellaneous” category.

Step 2: Figure out your “monthly” spending on each item

Make a quick estimate of how much you spend per year for each of the things on your list. It’s okay if you don’t know the real numbers yet. Again, the most important thing here is to get started so your best guess is more than okay right now.

Then for each expense, take that annual number and divide it by 12. That gives you an estimated monthly “budget” for each one.

As an example, let’s say that you typically travel 3 times per year and end up spending a total of around $2,000 between the three trips. That comes out to an average of $166.67 per month.

Write down that “monthly” amount for each item. You’ll use it in Step 3.

Step 3: Automate savings for each

Okay, now you’ve got your list and you have an estimated monthly amount you spend on each item. Now it’s time to start making those irregular expenses a little more regular. So how do you do it?

It’s actually pretty simple. Rather than dealing with them as they come up, you save for them ahead of time. In a dedicated savings account. Separate from where you pay the rest of your bills.

Let’s take our $166.67 “monthly” spending for travel as an example.

The first step is to set up a savings account for “travel” (I use Ally Bank to do this, but there are plenty of options). Then you set up an automatic monthly contribution of $166.67 from your checking account to that savings account and VOILA! You no longer have to worry about whether you have the money to travel. You can simply check your dedicated savings account to see how much is in there.

You can use the exact same setup for things like car maintenance, home repairs, healthcare, and anything else you KNOW will come up but can’t predict when.

And when you actually spend money in one of those categories, you simply move the amount you spent out of the dedicated savings account back into your checking account.

And like magic, you’ve made your irregular expenses regular!

But wait…

Now, I will say that this exact process works best if you do your spending on a credit card, because you can actually spend the money first and worry about transferring it back to your checking account second (before the credit card bill is due). It eliminates any problems that might arise from not actually having the money in your checking account at all times.

This is how I do it, because I use credit cards for all my spending. But you may not, and if that’s the case then I would follow the same principles with a slight twist.

Wherever you have your checking account, set up a savings account and link it back to your checking so that if you ever overdraw from your checking account, the money will automatically be pulled from your savings account.

You can call up your bank and ask them to help you set this up, and also make sure there aren’t any fees associated with doing so. I do my basic banking with Fidelity and setting up this kind of arrangement is easy and free.

Then, instead of having separate savings accounts for each irregular expense (like I do with Ally), you can just use that one savings account.

The only problem is that it becomes a little harder to keep track of how much money you’ve set aside for each bucket. One option would be to use Excel. Another option would be a program like You Need a Budget, which I’ve never personally used but have heard great things about and will track this for you. You have to pay for it though, so if you can track it on your own to start that might be the best option.

Step 4: Track your spending and make adjustments

Starting with your initial estimates is a great first step, but over the long-haul you’re probably going to want to use more accurate numbers.

The easiest way to do that is by tracking your spending, which I talk about here. You don’t need to actually keep a budget, just keep track of what you spend in different categories so that over time you can start to get at some real numbers.

This will not only help you adjust your automated savings amounts to make sure you’re not over- or under-saving, but it may help you figure out new categories you need to handle and will make you more aware of any categories where the spending is getting a little out of hand.

Step 5: Rest easy

There’s nothing more stressful than a big, unexpected expense when you don’t know where the money is going to come from. When that threat is constantly hanging over you, it makes it harder to enjoy the regular things you do every day.

The best part about this strategy is that it lets you relax. By automatically saving for things like car maintenance and travel every month, you’ve regulated your spending in those areas and ensured that you can handle the bumps in the road whenever they happen.

Good financial planning lets you rest easy today knowing that you’ve got tomorrow handled. This system is one of my keys to doing just that.

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  • Michael Solari April 10, 2014

    This is exactly what we do! Firewood, disability insurance, trips to Sam’s Club, etc. Basically, anything that doesn’t happen monthly we’re putting money aside so we’re not scrambling for cash.

  • Emily @ evolvingPF April 10, 2014

    We have the exact same system, down to the choice of bank! I love it.

    However, when we started saving for irregular expenses it was because we were really strapped, so I would not have been able to set up a bunch of savings rates at the same time. We needed time to find ways to cut in other areas. So what I recommend for people starting out is, instead of thinking of all the possible irregular expenses, to wait until one comes up and then set up a savings rate immediately after for the next time it comes around (estimated). Over the course of a year you should have every reasonable category covered, and it won’t be such a shock to your budget.

    • Matt @ momanddadmoney April 10, 2014

      That some good advice Emily. Would you suggest that at least setting up a single savings account and putting something away, so that when that first one comes up you’re not empty-handed? Otherwise I really like this tip. Thanks for adding it!

  • Money Beagle April 10, 2014

    Good stuff. I do this probably to a bit of an extreme. I have roughly 30 categories, short term and long term focused alike, that I contribute ‘allocations’ to on a monthly basis. My spreadsheet is pretty complicated but I have peace of mind in knowing that expenses are covered throughout the year.

    • Emily @ evolvingPF April 10, 2014

      30?! Can you list them? I’m so curious!

    • Matt @ momanddadmoney April 10, 2014

      Oh wow! I’m with Emily. Share the list!

  • thefrugalweds April 10, 2014

    Great post, Matt!
    I have to agree – there are expenses that you need to account for that’s not in your budget. Like you, we put all of our expenses on our credit cards too. But we usually have about $150 per month in our budget that we allocate as the “what-if”‘s that we have in the month. It stays in our savings until we have something to spend for. So far it’s just been growing and growing 🙂 Either way, I’m happy we have several fail-safe’s in place!
    By the way, tough day with the market today – what are your thoughts on it, Matt. Just an isolated bad day or signs of more negative market news to come?

    • Matt @ momanddadmoney April 10, 2014

      We’ve got the same $150 “what-if” category! We just call it “miscellaneous expenses”. Yours is a little more fun.

      As for your question about the market, I’ll be 100% honest that until you said something I didn’t even know. I try to pay as little attention to the daily movements as possible because I think they’re completely irrelevant. Here’s something I wrote recently that talks about just that: http://momanddadmoney.com/stock-market-falling-news-grass-green/

  • Done by Forty April 11, 2014

    I hadn’t thought about it, but I think we do this with our really big expenses (like travel). For the somewhat smaller ones that come infrequently (property taxes or home insurance, car maintenance, etc.), we just pay the bill on the month that it comes due. I started keeping a bunch of savings accounts and then decided I didn’t want to manage that many accounts. We have four, I think, now…even that’s probably too many for a lazy guy like me. 🙂

    • Matt @ momanddadmoney April 15, 2014

      We certainly don’t have it for everything, just some of the bigger ones, and especially things like travel or car maintenance where they’re not only irregular timing but also unpredictable amounts. In the end, I think the simplest way you can do it that works for you is good.

  • Tonya April 11, 2014

    I’m working on creating various savings buckets for a few more unexpected items through the year, like gifts. The trick is finding out what group of funds I can pull money from. I’m so tight with everything as it is!

    • Matt @ momanddadmoney April 15, 2014

      Yeah it can definitely be tough when money is already tight. You might want to look at Emily’s tip, which is basically just to create a single “unexpected expenses” fund rather than making a bunch of different ones. That might be a little easier on a tighter budget.

  • Pauline @RFIndependence April 15, 2014

    For me the irregular expenses generally sum up to a similar amount every month. Because there is always something unexpected but in a predictable amount, it is almost expected.

    • Matt @ momanddadmoney April 17, 2014

      Interesting. I definitely find that we have some months with much more in the way of irregular expenses than others. Car repairs have been a big one that will make a certain month spike.

  • Jennifer Bertotti December 15, 2016

    I have NEVER found a blog/article that so speaks to the way my brain thinks. I wish more people knew about your blog, I was always searching for a blog that just got how I felt/thought and I feel so grateful to have found you. I just want to devour your site for hours now!!!

    • Matt Becker December 16, 2016

      Oh man, I can’t tell you how awesome it is to hear that! Thanks so much Jennifer. I’m really glad you find it helpful and please let me know if there’s ever anything more I can do to help.

      • jennifer December 19, 2016

        Honestly i wish more people knew about your blog, I really think if you did some more youtube videos they could do well too!! I am going to share your page in a budgeting group I am in on fb 🙂

  • Pinky December 26, 2016

    Thanks Matt for such great posts. It’s been very useful reads during my maternity leave and although I was doing some of these already (different accounts etc), your posts have definitely covered lots of things that are critical for anyone who need to manage money better. I have spent any time I could find over the last two weeks (only came across your blog then!) to go over all your posts so I can adhere to most of these suggestions. It’s amazing and I intend to guide some of my family towards your posts.
    I agree with Jennifer’s comments. Your posts are straight to the point and totally makes sense!

    • Matt Becker January 2, 2017

      Thanks so much Pinky! I really appreciate the support and I’m glad it’s been helpful.

  • Lynette December 30, 2016

    Amazing information. I was so in need of this article to help me start on a road to financial recovery. Thank you

  • Matt January 16, 2018

    Do you have a recommendation for a specific amount to shoot for to keep in this account? Right now shooting for $1,000.

    • Matt Becker January 16, 2018

      In terms of irregular expense accounts, it really depends on your personal situation. Some people might spend a lot on travel while others will only spend a little. Some people have an old house that needs a lot of maintenance, while others have a newer house doesn’t require much work. I would first work on tracking your spending, either with a tool like You Need a Budget or Mint, to get a sense of how much you spend on these things over time. That will help you determine how much you need to save for each.

      If you’re asking about your emergency fund, this post goes in depth: A Comprehensive Guide to Building Your Emergency Fund.

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