How to Plan for Budget Busters

How to Plan for Budget BustersAt one time or another, most of us have fallen victim to a budget buster. While you can never prepare for every possible unexpected expense, you can prepare for most of them… All it takes is a little planning.

You see, the thing about unexpected expenses is – if we’re being totally honest with ourselves – they’re not really unexpected. We know they’ll comes sooner or later, right? So why not just expect the unexpected and formulate a plan? Let’s get started!

Plan for the unplanned

As we’ve already acknowledged, we know most “unexpected” expenses will rear their ugly head at some point, so let’s focus on how to defeat the beast before it strikes. Okay? Here we go.

  1. Compile a list of irregular expenses. Sit down with your significant other and write down every irregular expense you can think of. Anything that is not a monthly bill is an irregular expense. Write them down and estimate how much they will cost.
  2. Save for your irregular expenses. Adding up all the expenses you came up with in Step One and dividing by 12 will give you an amount that you will need to save each month.
  3. Don’t forget miscellaneous expenses. After you come up with your total amount, add a safety cushion for each month. Either a flat dollar amount or a percentage, depending on your circumstances. This will help you save for those miscellaneous expenses you forgot about, as well as any truly unexpected expenses.
  4. Fund a dedicated savings account automatically each month. Create an automatic transfer of the final amount from step three into your new irregular expenses savings fund each month.

Now let’s break a few of these points down and talk about them in a little more detail.

Compile your list of irregular expenses

Trying to come up with all your expenses can be a little intimidating, and this is actually the hardest part of the process, but don’t worry… You won’t even break a sweat, and once you’re done you’ll feel great knowing that your plan will save you a lot of headaches, time, and money over the long haul.

Be sure to include infrequent payments such as car repairs, life insurance premiums, auto registrations, and so on.

If you don’t think of everything, don’t worry, at least you’re saving — and don’t forget about the extra amount you included for miscellaneous stuff. My wife and I have been doing this for the last year or so and it has saved us so much trouble, stress, and cash. Being prepared is so damn nice!

Save for and fund your irregular expenses

You have your list of expenses and have accounted for additional miscellaneous expenses that are bound to happen, now you just have to start saving money. Let’s say your expense amount comes to $200/month… Just start funneling that money into your new savings account.

Don’t have room in your budget for an extra $200 each month? I don’t buy it. Do you even have a budget? A WRITTEN budget that you actually maintain and adhere to? If not, there’s your first problem.

Cancel your cable TV. Cancel your cell phone and get an unlimited Vonage line for your home for $25/month. Save money on groceries by planning meals, shopping in bulk, and growing and processing some of your own food.

If you don’t have the extra $200 at the end of the month, then you need to start trimming down your standard of living. Don’t like the thought of that? The alternative is to continually have unexpected expenses popping up and taking all your dough. You make the choice, but I’ve done both and my advice for you is to cut back, plan, and save.

Exercising your self-discipline is a good thing… It’s one of the keys to financial success.

In closing…

It’s really this simple:

  1. Plan
  2. Save
  3. Enjoy

Now that you’ve written things down and are saving, there is almost no reason why you should ever let anything bust your budget ever again! You do have a budget don’t you? 😉

What About You?

Do you have a plan to stop budget busters dead in their track? Let us know how you do it.

12 Responses to “How to Plan for Budget Busters”

  1. Anonymous

    My online banking system (PNC) has a nice feature in the savings account where you can set up savings goals and essentially define these ghost funds. I have about ten or so. I figured the annual need for each, added 10% and divided by 24. that amount i get direct deposited into savings and then just allocate the money to each fund. I even get a nice little progress bar to show how ‘full’ my funds are. it is awesome to see in progress and saves me ton of frustration of scrambling to find money for the next big thing.

  2. Anonymous

    John, the more systematic way to do this is to set up a zero-based budget on paper. You expense all of your income out to a number of funds, including your “ghost funds”, keep track of your expenditures, then at the end of the month (I do it every week) you adjust the “ghost balances”

    When you do this, you mostly live by the amount in your ghost balance sheet (I call them budget categories, not ghost balaces!)

    In other words, in my case, I have about $10,000 in the bank but when it comes to buying clothes I have only $348. That’s because of the $10,000, $1300 if for medical copayments if I need them, $588 is for car repairs, $800 is for building up a much larger income replacement fund (in case I lose my current monthly income)–etc etc and accounting for the whole $10,000.

    Another thing I do is I budget this month based on the money I have banked from last month. Any October income is used for November expenses.

    This is handy because it allows you to set a hard budget for the month, because by the end of October you have a hard figure for how much you have earned and can use that as your firm November available income line in your budget, instead of having to adjust the whole budget according to income fluctuations during the month of November.

    I only look at my checking account balance when i’m at the point of making a large purchase to make sure I don’t overdraw (the 10,000 is spread out among checking and a couple of savings accounts). What I look at day to day and week to week is the budget page, where, for example, I have $128 left for groceries till the end of October.

    It really doesn’t take more than 15 minutes a week to maintain, even with just a calculator and a pencil.

  3. Anonymous

    KK: that’s really interesting (and I read the article that you linked) because when I added up our irregular but known expenses, they came to just about 10% of our current annual income.

  4. Anonymous

    …there are known “knowns.” There are things we know that we know. There are known unknowns. That is to say there are things that we now know we don’t know. But there are also unknown unknowns. There are things we do not know we don’t know…..

  5. Anonymous

    I first heard of this concept under the term “Freedom Account”:

    I haven’t used it as much as I’d like, but I think this is a fascinating and wonderful approach to managing “irregular” expenses. Basically you are managing multiple accounts within the same account, and each time you deposit money into that account you divvy it up as needed amongst the various planned expenses. For example, maybe your flood insurance is due soon but your annual termite protection isn’t due for six months. Instead of evenly dividing each month, you can just put all the money that month against the flood insurance to make sure that expense is funded for immediately, then next month divide the money amongst the remaining items. And if you have an emergency that goes even beyond your saved expenses — say you budgeted $1,000 for car repairs but had to spend $1,500 yesterday — you can simply cannibalize the money from the other “accounts” (i.e. the other ledgers) and see immediately what that expense is REALLY going to cost you in terms of your long-term financial health. Maybe that car repair means you can’t buy that sofa, or vacation, or maybe you need to tighten your budget for a couple months to be sure you can now cover your flood insurance.

    It probably sounds a lot more complex than it is, but it really is just simple bookkeeping, and once you sit down and write it out on a few sheets of paper (I played with it using one ledger sheet per “account” in a folder) it makes perfect sense. And you see at-a-glance what your financial picture is for your upcoming expenses.

    *EDIT to clarify* — THE KEY is documenting how you allocate the money for your expenses. Being able to check your ability to pay upcoming expenses quickly gives you a huge feeling of safety and security.

    Incidentally, planning gift payments this way makes it very easy to plan for giving at all occasions throughout the year.

  6. Anonymous

    The “60/40 solution” defines irregular expenses as anything that doesn’t happen on a monthly basis or anything that is unexpected. It calls for saving 10% of your gross income just for this purpose. Examples are: car repairs, holiday spending, travel, house repairs, etc. You spend this money on an as needed basis.

    This is a great budgeting methodology for me in general. See

  7. Anonymous

    I thought this was a really valuable post – just about a week ago I started a list of irregular expenses. I’ve always kept a budget, but have never tracked/planned these irregular expeditures anywhere near as efficiently as I have with our regular monthly expenses. And some of them are rather large amounts. I feel like this is a good next step for better control of our finances.

  8. Anonymous

    What ever the word/defination we use for expenses that are not ‘weekly/monthly’ – the point I see is ,,,,,, did you do the math, did you write it down, are you excuting the plan, anlyze it and adjust it as time goes on.

    @john – I love the term “ghost funds” and do something similar – and still doing it ever since college when Carter was president. It is your way to wealth creation! So – write it down and get it done

  9. Anonymous

    Seems rather confusing and unhelpful budget advice.

    Apparently there are “unexpected”, “truly unexpected”, “unplanned”, “irregular”, “miscellaneous”, and “additional miscellaneous” expenses we all need to consider {??}

    Such loose and inconsistent terms make little sense to average readers.

    Also quite surprising to learn that routine ‘auto registration’ fees and ‘life insurance premiums’ are “irregular expenses”.

    Overall, the author is merely urging folks to be more thorough in their budgeting… and more careful in their spending — simple financial advice that’s been said before thousands of times.

  10. Anonymous

    In my household, we do indeed save for irregular expenses we can predict. Insurance premiums, property taxes, car registration and licensing our pet with the county all fall under this umbrella.

    Additionally, we keep $5000 separate from our emergency fund. We’ve called it many things from an opportunity fund to a personal line of credit. What it boils down to though, is those unpredictable expenses. Be it a home and/or auto repair or the chance to buy a side of beef at an amazing price. It has saved our hides on several occasions.

  11. Anonymous

    I recently set up what I call ghost funds. I don’t have a dedicated savings account for my emergency fund because my checking account has an excellent interest rate. I set aside a dollar amount each month on paper only for home repairs and car upgrades and repairs. Each of these funds will carry a balance, although the total cash on hand may not exactly match the balance of the funds. The goal is to have cash on hand that is greater than the balance of my ghost funds.

    If I have to spend money for repairs or upgrades, I deduct the cost from the applicable ghost fund. This should allow me to track expenses and maintain a cash buffer without the extra account that makes .5% interest.

    The issue with this system is going to be discipline. Since the funds are never actually moved to a separate account, it will be very easy to just modify my numbers to make room for an unnecessary expense. I’m working on setting up rules to reduce the chances of this.

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