Putting together your budget by the month makes sense most of the time—you pay your rent or mortgage, utilities, student loans, and other bills all monthly, right? Problem is, certain expenses—the end-of-summer vacation you’re planning, your best friend’s destination wedding, holiday shopping—crop up only occasionally, maybe just once a year.
So, how do you factor them in to your monthly spending plan? Here are a few guidelines to make sure you stay on track, no matter what you have planned this year.
At the beginning of the year, I always plan out my vacation days for the next 12 months. After all, I only have so many available, and I want to make sure I don’t get to November and realize I can’t take extra time off around Thanksgiving.
Planning your budgeting needs in advance is similar. If you know you’re going to need to buy a bridesmaid dress, a plane ticket to the wedding, and a gift for the newlyweds in April, estimate how much you’ll need to save before then. Divide that by the number of paychecks you’ll receive prior to that date, and you’ll know exactly how much of each check you need to stash to cover the cost.
Don’t forget the expenses you encounter year after year, either—car insurance is a common one. If you pay your premium every six months, and it costs you $600 at a time, you should subtract $100 from your budget each month (or set it aside in a separate savings account) until it’s time to pay.
Find the Best Place to Save
Once you’ve determined how much you need to accumulate throughout the year to cover each of your big-ticket items, you have a couple of different options. If you tend to be good at budgeting and tracking, it’s fine to amass one general savings fund, transferring the amount you need to save every month into that account.
But it might be easier to set up separate accounts for each large expense—a vacation fund, a new computer fund, a holiday fund—so you can easily track where you are with your goals. Your bank or credit union might even offer specialized savings accounts like a “Christmas Club” that keep you honest: They let you put money in all year, but penalize you if you withdraw before a certain date.
Don’t Forget Your Emergency Account
Now, in addition to saving for your planned big expenditures, you should also be putting money into a separate account for emergencies. This “Emergency Fund” will keep you from needing to drain your fun savings accounts for the kind of unexpected expenses most of us dread. Experts recommend maintaining a balance of three to six months living expenses in case of unforeseen events—if you lose your job, become ill, or need to repair a necessity, like your car or your roof.
And, tempting as it may be, don’t tap into (or even borrow from) your emergency savings for your vacation or other costs you should be budgeting for. If you make a habit of it, you’ll find yourself in financial trouble when a real emergency arises.
Don’t Put it on Your Credit Card
Like dipping into your emergency fund, your credit card can be another threat to your annual financial plan. It’s fine to put a big purchase on a card to earn the airline miles, cash back, or rewards points that come with it, but make sure you’ve budgeted for the amount you’re charging and that you pay it off immediately. If you’re paying interest every month, that amazing deal on an all-inclusive vacation could cost you far, far more than you bargained for.
By planning ahead for your larger and less common expenses, you can feel secure knowing you’ve set aside the funds to cover them.
Have any budgeting tips you’ve found especially helpful? Share with our readers!