Financial Fitness: Periodic Expenses

by Penni L Smith on January 10, 2013

Pink Piggy BankSaving. We all know we should do it, but many people don’t do enough. It can be difficult. If you follow my earlier counsel, some funds should be designated for giving. Then bills need to be paid. Food and household items purchased. Basic needs meant. And, when all that is done, if there is anything left, then there is the incessant clamor of desire for other things, whether a few dollars for a treat or hundreds for the latest electronic iTthingamajig. How does one find any money to save?

And there’s so much to save for. Retirement. College. Medical expenses, if you have a health savings account. The emergency fund all the financial folk say you should have, a sum to cover the total of 3-6 months’ of all expenses.

There are techniques that will help you save for these things, and we’ll explore them in subsequent posts. Right now, however, I want to talk about the savings need I never see discussed specifically: saving for periodic expenses.

Budgeting would be so much easier if we had the exact same expenses each pay period, whether that was weekly, bi-weekly, or monthly. We could easily parcel out our funds, and always know how much discretionary money we would have.

But life doesn’t work that way. Some expenses come up only on occasion, perhaps as rarely as once or twice a year, or as frequently as every few weeks. These aren’t really emergencies. We know they are coming and can plan for them. But do we?

I’ve seen the difference that saving money to meet these periodic expenses can make. I had someone live near me once who would never set aside any money. Admittedly, she had very little. But then, something would come along like her car registration. She knew this was an expense that came every year. She knew how much it was. And although she didn’t have a lot, she could have skimped a little to tuck away $10 every month to cover this cost. Instead, the month it came due she’d be hurting greatly because she had to come up with a lump sum all at once that took a big chunk of her funds. It was sad, but no amount of counsel could convince her to change.

This won’t be fun, but it will be helpful. Make a list of all your expenses that occur less often than once a month. My list includes property taxes, car registration, car maintenance, the quarterly trash bill, the whenever-they-deliver-it propane bill, newspaper and magazine subscriptions, gifts to others (not just at Christmas), clothing, hair cuts, health care (co-pays, vision and dental care, non-covered items), and pet needs. You might have educational or child-related expenses that come irregularly. Though this is designed to address mandatory expenses, you can elect to include some optional ones that you know you won’t deny yourself, such the cost of vacations, or even just extra gas to visit relatives on holidays.

Figure out how much each one costs annually. Some of the expenses will be fixed and known, such as taxes or car registration. Others, such as car maintenance or, for me, vet bills, can only be estimated. You know they will occur, but the cost could be any point in a great range. Make your best generous estimate. Ignoring the cost won’t make it go away, and having extra is always good.

Now divide the total of these annual costs by twelve to get the monthly amount you need to set aside to meet them.

Ouch! That may be a lot more than you expected. Tough as it is to meet the bills when they come due, it may seem tougher to try to come up with what you need to set aside each month for them. After all, when it is due, you must to come up with money, but setting aside some each payday is optional. If you are in that mindset, you need to get free of it.

We’ll talk about techniques to make saving easier in subsequent posts. For now, if you aren’t already doing this, you know a place you need to start.

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