Image by 401(K) 2013
Periodic expenses are frequently overlooked while creating a budget.
It’s easy to budget for activities we do every month, like buying groceries, paying mortgage and utilities. Activities that occur on a periodic basis tend to slip through the cracks and catch us by surprise, leaving us unprepared to cover the cost.
It’s those periodic expenses that can keep us trapped in the debt cycle; so it’s important we include all of those periodic expenses in our budget in order to have cash set aside when the expense comes up.
Make a List
Before you do anything else, take a few minutes and think of all the periodic expenses that should be part of your budget. Here is a quick lists to help you get going: Christmas, birthday gifts, car maintenance, medical expenses, home maintenance, vacation, HOA fees, etc. As you can see, this is a list of activities you know will happen sometime throughout the course of the year and will require funding, hence you should fund those expenses before they occur.
Fund Your Periodic Expenses
Now that you have a list of periodic expenses, estimate how much you expect to spend on each activity in the course of the year. Once you have the annual amount, divide it into 12 and that’s the monthly amount you should set aside. If you’re using Mvelopes, it’s very easy to do. Just create a virtual envelope for each periodic expense and start funding it each month with the predetermined amount.
Sticky Fingers & Roll over
One very important thing to keep in mind is that you should not tap into your periodic expense envelopes in order to cover another expenses. You need to be disciplined enough to leave all of your periodic expense envelopes alone until that particular need comes up. The beauty of having a solid budget plan for those periodic expenses is that you may find a way to spend less than you budgeted, and, if that happens, you can roll the remaining amount over to the next year and build solid savings in those categories. Can you imagine having enough cash saved to cover a major car repair without tapping into your regular savings? Or how about doing your Christmas shopping completely debt-free year over year! What a freeing feeling that will be!
So do not skip over this important step in your budgeting process. Don’t underestimate the power of being financially prepared for those periodic expenses since they can add up to quite a good amount of cash that you will otherwise have to sacrifice from your savings, or use credit, in order to cover them. Expect the unexpected and prepare–you’ll be glad you did!