How to Budget and Save for Non-Monthly Expenses

You are doing a monthly budget, tracking every dollar coming in and every dollar going out. After a couple of months, you are starting to get the hang of this “budget thing”. Then halfway through the month, you realize you forgot to budget for paying your car insurance this month since you only pay for it every six months. Maybe it was that birthday that happens once a year. Maybe it was your school tuition or books that you only pay for at the beginning of each semester. No matter what it is, these non-monthly expenses have the tendency to ruin our budgets and leave us scrambling with how we are going to pay for them.

So how do you plan for these expenses so you can make sure you can pay for them without going into debt? I developed the following method that I use personally and the majority of my clients use, which can be very helpful in simplifying how you account for non-monthly expenses in the budget process. The solution is a savings account set up specifically for your non-monthly budget items. Here is how it works:

1. First, make a list of all your non-monthly expenses with a description of the expense and the dollar amount. Think of things like insurance, home repairs, car maintenance, vehicle registration, tax return preparation, medical expenses, gifts, vacations, etc. Basically anything you know you will pay for during the year that does not occur every month goes on this list.

2. Second, add up all the dollar amounts in your list to get an annual total. Then divide that number either by 12 (for the number of months) or by the number of paychecks you receive during the year. This monthly or paycheck number is how much you will fund each month or paycheck into your non-monthly expense account.

3. Third, either use an existing or set up a new savings account that will only be used for the non-monthly expenses you listed in Step 1. Even change the name of this account in your online banking to “Non-Monthly Expenses” if your bank allows you.

4. Fourth, each month or paycheck (depending on which way you prefer) you transfer the dollar amount you came up with in Step 2 into the “Non-Monthly Expenses” account.

5. Lastly, when you have a month that a non-monthly expense happens you simply transfer the cash from your “Non-Monthly Expenses” account to your checking account to be able to pay cash for the non-monthly expense.

See Example Below:

How do you make sure you have the cash to pay for your non-monthly budget items? How is it working for you? If you find yourself struggling to figure out how to pay for those non-monthly expenses or putting them on credit, give this method a try. Let me know how it works for you.