For the longest time, I avoided budgeting because I hated not knowing exactly how much each bill was going to cost me. The biggest problem for me was that each month I had no idea how much our electricity bill was going to be. Of course, we do the best we can to ensure that it’s not too expensive while maintaining our comfort, but it could range anywhere from $80-$180 each month, depending on our usage. My number one irregular expense was our electricity bill, but yours may be something totally different, like daycare, so apply this to whatever bill it is that you have that’s an irregular amount each month. I decided I had a few options to budget for our irregular expenses.
1. I could call the electric company and get set up on their budget plan that basically takes your annual electricity bill total and divides it by 12. They then bill you that amount each month so that in the winter your bills aren’t astronomical while you’re loving it in the summer. This is a great method for people that aren’t as anal about their money as I am, and I figured I’d rather take matters in my own hands and deal with it myself. Not to mention, I’d be giving them extra money in the summer that I could be using for something else or earning interest on (ha!). That led me to my next idea.
2. Add up the annual electricity bill myself and divide it by 12. I can transfer that amount each month to a savings account and then have our electric company draft the payment out each month. This won’t help me much through this winter because we’re already into the higher electric bills, so I won’t have enough money to pay the winter electric bills. Boo.
3. Set aside a set amount each month in a separate savings account and then have the electric company draft the bill amount out each month. The excess will be saved in the account and put towards the future usage. In the winter, I’ll transfer more. In the summer, I’ll transfer less. I’ll work on padding the account enough that next winter I’ll be able to start transferring the average amount of the whole year divided by twelve into the account. I’ll have enough saved by then that I can do that.
The last option won out, and I opened yet another sub account with ING. I transferred $150 into that account to get it started. If our electric bill is more than that for this month, I’ll just add some more from our checking account. If it’s less, great. I’ll leave it in there so I get that buffer built up. I’m going to have the company draft the bill out of that account so I don’t have to worry about it. I won’t have to think if we have enough money in checking to cover bills; I’ll know! This is going to work out so much better than my old plan of guessing. 😉
How do you budget for irregular expenses?