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Constant plan for occasional expenses

October 06, 2006|by LYNN F. LITTLE

On paper your finances say you should be saving $200 a month, but often unexpected bills prevent you from saving anything. What you're describing are "occasional or periodic expenses" and they're usually the forgotten step in setting up a household budget or spending plan.

Occasional expenses are bills and other expenditures you don't pay every month. For example, some fixed bills such as insurance and property taxes are often paid every three or six months. In addition, "flexible" occasional expenses include clothing, gifts, school supplies and similar items. If you don't set aside money for occasional expenses, paying those bills can put a severe dent in your savings.

The answer is to set up an "occasional expense fund" and make sure enough money goes into it each month. To determine how much that is, you'll have to research past months' records and do some calculations.

For fixed occasional expenses, just write down a month-by-month list of those bills (insurance, taxes, subscriptions, memberships, etc.). For flexible occasional expenses, you'll have to do some estimating. Home and car maintenance bills, out-of-pocket medical expenses, holidays and gifts, shoes and clothing, furniture, travel, education and similar items all need to be tracked. When you're first setting up your occasional expense fund, you can use educated guesses for these items. But over the year, record them as they occur to help you refine next year's budget.

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Once you have listed all of your occasional expenses for a year, add them up and divide by 12. That tells you how much to save each month in your occasional expense fund. This should become a line item in your budget.

Starting such a fund can be tricky. Some people start it during a few months when expenses are relatively low, allowing it to build up over time. But you might find you need to "seed" the account with some extra money up front - from a garage sale or a tax return, for example.

Managing this designated fund can take a number of different forms. Some people just deposit the money in their regular savings, drawing it out as needed. Others start a new savings or checking account just for occasional expenses, making it easier to keep track of the account's status. If you decide to open a separate account, be sure to inquire about fees associated with the account.

To help you keep an accounting of your occasional expenses, you can download a free worksheet from Ohio State University Extension's "Manage Your Money" self-study course. A one-page PDF file is available at http://ohioline.osu.edu/mym/mym_5c.pdf. You also can complete an online course, Manage Your Money, available at http://ohioline.osu.edu/mym. Your budget spending plan will thank you!

Lynn F. Little is a family and consumer sciences educator with Maryland Cooperative Extension in Washington County.

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