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Planning for occasional expenses

November 03, 2011|Lynn 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 or periodic expenses generally occur only once or twice a year and are often forgotten until they come due. You are likely to have some fixed and some flexible occasional expenses.    

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

To help be prepared for these expenses consider establishing  an Occasional Expense Fund, and make sure enough money goes into it each month. To determine how much money is enough, you will have to research past months' financial records and do some calculations.  

For fixed occasional expenses, make a list, month by month 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 Expenses Fund, begin with educated "guesstimates" for these items. Over, the year, as these expenses occur, you can add in the actual cost, which will help, you refine next year's spending plan.  

Once you have listed all of your occasional expenses, both fixed and flexible, for the year, add up the costs and divide by 12. That tells you how much you will need to set aside in savings each month in your Occasional Expense Fund. This should become a line item in your budget/spending plan along with your regular "pay yourself" savings.

Starting an Occasional Expenses Fund can be tricky. Some people start it during months when expenses are relatively low, thus allowing the fund to build up over time. 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.  

For more information and ideas on managing and saving for occasional expenses, visit www.extension.org/personal_finance; www.smartaboutmoney.org and www.americasaves.org.



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

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