Wednesday, March 19, 2014

How We Compensate for Expenses We Tend to Forget

I’m willing to bet that just about everyone has forgotten about an upcoming expense or bill that arrives suddenly, catching them off guard.  I know that we have.  However, over the years, we’ve learned what to watch out for and how to compensate to keep these costs from doing too much damage to our financial planning.  Therefore, while we’ll never be able to catch every expense before it hits, we’ve developed a pretty good plan to minimize the effects of such costs.

Items we tend to forget
We’re pretty good at remembering most regular monthly costs; however, it’s those more irregularly occurring expenses that tend to catch us by surprise…or at least used to.  Items like our vehicle and condo insurance, annual family zoo pass, oil changes and vehicle maintenance, vision/dental costs, and safe deposit box fees are some of the costs to make this list.  Those bi-annual property tax bills can also come as an unpleasant and costly surprise.

Our new budget reserve
We compensate for our surprise expenses in several ways.  First off, we have our emergency fund.  And while this fund provides cash if we need it, we don’t like to dip into it if at all possible.  Therefore, we’ve created smaller, monthly reserve funds that are built into our budget.

These reserves only total about $200 a month, but in many cases they do the trick in compensating for our forgotten expenses.  A wedding present, birthday gift, surprise bill, or minor home or car repair can often be covered by this amount and keeps us from having to draw upon our real emergency fund.

Expense tracking and regular budget improvement
We also try to compensate for our forgotten expenses by tracking costs and improving our budget as we learn more about it over time.  By tracking our expenses over months and years, we begin to get a better feel not only for our regular expenses but those surprise irregular expenses as well.  While such expenses might only come along once or twice a month, seeing them over and over again year after year will eventually have us prepared for their arrival, and in turn, budgeting more accurately.



Disclaimer:

The author is not a licensed financial professional.  This article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

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