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Credit Busters: Irregular Expenses

Stefanie O'Connell 7/25/14

Just as you think you’ve gotten a handle on your budget, something you failed to account for pops up and busts your balanced plan.

These budget busters are not the unanticipated expenditures we prepare for with emergency fund money. These are expenses we know to anticipate but often forget to account for due to their infrequency or irregularity.

These expenses could be insurance contributions or premiums that only occur quarterly, property taxes that are only billed annually or a dental cleaning that only happens every six months.

While these expenses are infrequent, there are enough of them to add up. They can cause some serious damage to an incomplete budget.

In order to avoid this common oversight, it is best to add an extra line item to your monthly financial plan so you can be prepared when these irregular expenses arise.

1. List all of your irregular expenses.

This would include all insurance premiums, estimated tax payments, tuitions, gifts/occasions, home maintenance, vehicle inspections and repairs, registrations, office supplies, medical checkups, glasses/contacts, pet care, clothing, etc.

2. Estimate the annual cost for irregular expenses.

If you make four quarterly payments of $100 for health insurance, your annual cost would be $400.

Make that calculation for all of your irregular expenses and add up those numbers to find the total cost of your annual irregular expenses.

“This will help you see how

much you need to set aside.”

3. Incorporate irregular expenses into the monthly budget.

Divide the total cost of irregular expenses by 12. Keeping this money in a separate account can help you make sure it doesn’t get allocated to other expenses or appear as a surplus.

4. Add a buffer.

As thoroughly as you plan, there will undoubtedly be unexpected costs that catch you off guard. For instance, passport renewal only occurs every 10 years.

Even if you diligently accounted for every annual irregular expense, that intermittent bill could catch you off guard. To avoid any surprises, add a 10 percent buffer to your monthly irregular expense contribution.

Once you’re prepared for the irregular, your budget will be more likely to withstand any surprises.

Photo source: images.businessweek.com

Stefanie O'Connell is a New York City personal finance writer who lives by making her budget stretch. She shares financial planning, investing and spending advice on her blog, The Broke and Beautiful Life. A graduate of New York University, Stefanie discovered the world of financial planning out of necessity. Connect with Stefanie on Google+.
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