Financial Advice

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Three Tips to Conquer Irregular Expenses

Do you struggle to come up with the cash to pay for your insurance premiums, taxes, or other periodic expenses? If so, you are not alone. Regular monthly expenses like food and gas are probably on your radar pretty consistently, but when you only pay for something once or twice a year, it is more challenging to budget for it successfully. However, a little planning can go a long way. Follow these three easy tips to make paying for periodic expenses much easier.

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Identify Your Irregular Expenses
The first step is to determine what irregular or periodic expenses you have and how much they cost you per year. Look through your bills and statements over the previous year or two if you can. That will help you see patterns and remember them all. Then make a list of these expenses. Some of them will be fixed expenses (that is, always about the same amount) and some will vary a good bit). Obviously, you might not know to the penny what you might need to spend on some variable expenses in a given year, but you can make an educated guess. The following expenses are among the most common irregular expenses:

Vehicle costs (maintenance, repairs, parking permit, registration, taxes), clothing, entertainment, household items, insurance premiums (health, dental, vision, auto, homeowner, renter’s, life, disability), gifts, medical expenses, taxes, travel, tuition, and fees.

Include Irregular Expenses in Your Budget
Once you have your list of these periodic expenses, you can add them to your monthly budget plan. Add one line item for the expense to your budget, and divide the yearly cost by 12 to get the monthly amount. This way, you can start thinking of it as a monthly expense. For example, if your auto insurance costs you $600 every six months, you would add a monthly expense of $100 per month. Instead of actually paying this $100 expense each month, you would set it aside or move it to a savings account. The important thing is that you know it’s earmarked for your insurance payment when the time comes.

When it comes time to “pay” for this expense each month, we recommend you move it to a savings account. You can put everything in one savings account, but many people prefer establishing separate accounts for different purposes. Do not leave it in your checking account though. Most people find that if it stays in their checking account, it is more likely to be spent on other expenses, in spite of the best intentions.

Many credit unions allow you to set up subaccounts within one savings account. Otherwise, you can open a specific savings account for these irregular expenses. Be sure to pay attention to the minimum balance requirement and fee schedule. If possible, have the money that is earmarked for these expenses transferred or directly deposited into the savings account(s).

Inform Your Billers and Payees
If, despite your best efforts, you are unable to save enough to pay your periodic expenses on time, talk to a representative at that institution. Have a genuine conversation and let them know you’d like to pay what you can and remain in good standing. Can you lower any penalties by paying what you can now? Can you set up a monthly payment plan? Charging things to your credit card when you cannot pay off the balance in full the next month is usually not wise, but in some cases, it could be a good option if the interest you are charged on your card is less than the late fees you would be charged. But you wouldn’t want to make that a habit. If you cannot put enough in savings each month, it is a good idea to examine your expenses to see what you can cut to free up cash.

With a little advance planning, your annual or biannual expenses don’t need to be cause for alarm. Instead, try to do what you can to take care of these expenses year round.