Budgeting is essential for financial stability, but even the most meticulously planned budgets can be blindsided by unexpected or irregular expenses. Need help overcoming budget-busting expenses? You probably know the big ones—Christmas, the quarterly insurance premium, the annual property taxes—but let’s dive into why these are so challenging and how to handle them effectively.
1. Holiday Spending
The holiday season is a time of joy and giving, but it can also wreak havoc on your budget. According to a survey, the average American plans to spend nearly $1,000 on holiday gifts. Now, imagine this $1,000 hit in a single month—would it blow up your budget? ABSOLUTELY!
Solution: To smooth out this expense, consider setting up a Christmas fund. By calculating your estimated holiday spending and dividing it by 12, you can save a set amount each month. For instance, saving just $84 every month would cover a $1,000 holiday budget, leaving you stress-free when the festive season rolls around.
2. Quarterly Insurance Premiums
Insurance is a necessary expense, but quarterly premiums can be budget-busters. Let’s say your car insurance premium is $450 every three months. That’s a significant amount to pay in one go, especially if it coincides with other large expenses.
Solution: By calculating the annual cost of your premiums and dividing it by 12, you can save each month. In this case, $150 set aside monthly will ensure you’re prepared when that $450 bill arrives.
3. Annual Property Taxes
Property taxes are another heavy hitter, often due once a year. Depending on where you live, this could be a substantial amount—let’s say $1,200. A one-time payment like this can throw your budget into chaos if you’re not prepared.
Solution: Treat your property taxes like any other monthly bill by dividing the total by 12. Setting aside $100 every month will make the annual payment much more manageable.
Smoothing Out the Peaks and Valleys
To eliminate this peak-and-valley, feast-and-famine style of living, take the time to list out all of your KNOWN, UPCOMING expenses and their associated annual cost. In the examples above, the annual budget-busting expenses total up to $4,400 per year. Divide this number by 12 months, and you arrive at $367/month. If you save $367 EVERY SINGLE MONTH, you WILL be able to absorb these budget-busting expenses without the huge headaches that you may currently be experiencing!
Don’t believe me? Ask anyone with a Christmas fund or a home mortgage escrow account! These are nothing more than budget-buster smoothing tools. Mortgage companies and businesses have realized that if the costs are not smoothed out and absorbed monthly, the chances are unlikely of you having enough cash on hand when the bill arrives otherwise.
By identifying your major expenses and smoothing them out over the year, you can take control of your budget and eliminate the stress of surprise costs. Start today by listing your budget-busting expenses and setting up monthly savings goals. Your future self will thank you!