I love the end of the month. When I can see how well we did — if our spending was less than our income, and by how much — it gets us one step closer to our financial goals.
But that’s in the good months. In the bad months, it’s not as much fun to see how much you overspent — and figuring out where that money is going to come from.
Of course, those months generate a lot of excuses.
We had to buy a new printer. My car broke down and I had to replace the engine. It was Black Friday. I really need a new suit/hat/dress/pair of shoes. We had to get our Christmas tree.
Here’s a reality check: you will always have unexpected expenses.
Budgeting for Unexpected Expenses
We’ve gone over the process of creating a budget using Yodlee, including breaking down your spending by category. But one category you should always prepare for is the dreaded miscellaneous.
It’s always tough to gauge how much you’ll spend in the miscellaneous category each month, since these unexpected expenses can range from a lot one month to nothing the next month. One thing for sure, however, is that you need to create room for it in your budget.
Your best bet is to assume that these expenses will be up to 10% of your monthly spending. Hopefully, you’ll be underneath that, but in order to practically prepare for these costs — which should not come out of your emergency fund — give yourself a fair amount of room in your budget.
It’s easy to look at the categories that most budgeting software gives you, total up your expected monthly spending in those categories, and look at the big difference between that and your income.
But miscellaneous can certainly cost you more than you expect. And every month, it will.
Misc. vs. Once-in-a-while vs. Emergency
Every account you own has a name, right? If not, you really need to download the ebook now.
It’s important to separate what is a once-in-a-while expense, what’s an emergency, and what is just a miscellaneous cost.
- Once-in-a-while costs are predictable but come every-so-often (insurance, yearly membership dues, quarterly bills, etc.)
- Miscellaneous costs should fit into your monthly budget
- Emergency costs generally do not fit into your monthly budget
If you’re treating expected irregular costs as emergencies, you’re not putting enough aside in your once-in-a-while fund. Some take online loans in dire emergencies, but having a prepared fund can prevent this. If you’re trying to pay for a huge, unexpected doctor’s bill with your monthly budget, good for you — but you don’t need to (Don’t tap into your financial cushion, use your emergency fund).
And if you’re using your emergency fund or once-in-a-while fund to pay for the new showerhead or printer you bought this month, you don’t have enough room in your budget for unexpected expenses.
Remember, your budget will always have unexpected expenses. Leave room for them!
