Making a budget can be super simple or super complex, but no matter what your preferred method is, you’re bound to need some refinements as you go along. That’s the entire point of going through the exercise of creating a budget, anyway, right? Set up some goals, track what’s coming in and going out, and try to maximize the in while minimizing the out to hit your goals more quickly. But chances are that even if you budget regularly, there can be a few “gotcha” moments.
Here’s four of them that are pretty easy to overlook, and how to prepare for them.
Lump-Sum Insurance Premiums
This one consistently got me for a couple years out of college. It was the first time I was paying my own car insurance, and instead of paying each month, I decided to pay 6 months in advance to save something like 20%. I’d go through the exercise of creating a budget, but without fail when that bill got sent to me it caught me off guard. Likewise, I’ve had a life insurance policy for a while and the premium is paid every year.
How to fix it: This one’s pretty easy. I opened up a separate savings account (most banks should let you do this without much hassle) and each month set up a recurring amount to cover these premiums when they come due. If my premium is $600 for 6 months of car insurance, I just set up a monthly $100 transfer on the first of the month. Automating makes it a no-brainer, and I’m never caught off guard again. When the premium comes due I simply transfer the money and pay it, and keep on living my life.
Side note: If you don’t have a life insurance policy you should consider getting one, especially if you’re married or own a home. If the unfortunate happens, at least those close to you will have one less thing to worry about.
If you own a car or a home, you should make sure to budget for maintenance costs. Things break, and as we use them more and they get older, they are more prone to breaking. A good friend of mine worked at a company that created some test devices used by car manufacturers. It’s not uncommon for car manufacturers to make and use parts that are explicitly designed to fail after the warranty period as a means of cutting costs. For example if they had engineered a part that would last for twice as long as the warranty, then they could manufacture it for less and as a result of the cheaper manufacturing, it’d be more likely to break shortly after the warranty period.
If you own a home, there are some big-ticket items that are bound to break, especially if you’re in the home for a while. Kitchen appliances, furnaces and A/C units, roofing…everything’s got an average shelf-life. Slowly socking away money each month over the expected life of an item will help lessen the blow on your finances when those things do inevitably give out. Take the example of the 8-12 year life of a water heater. You can pick one up for a few hundred bucks, or something like 5 bucks a month. Easy to deal with. Bigger-ticket items, like a new roof, can run you several thousand dollars; a big hit if you’re not prepared for it.
How to fix it: Figuring out exactly what you need isn’t really a great strategy, nor is it even really possible. Whether your water heater will last 8 or 15 years isn’t something that you can ask it when you install it. My strategy for this is simple – set aside a small amount each month into a savings account, and when you need to pull from it, do so. If you know you’ve got something big coming up soon and you don’t have enough saved, find other areas to cut back on so you don’t need to rely on using credit. If you’re handy you can cut some of the expenses down on these things by installing appliances yourself or changing your own oil. If you grew up in a household like mine, though, you received extremely little in the way of training to become a handyman (duct tape can fix everything, right?) – so finding a friend who’s good with those sorts of things can help, otherwise be prepared to pay a bit more to have somebody else do it.
This one can be difficult for a number of reasons, but it’s important to keep in mind nonetheless. If you come from a family that loves to give gifts, then making sure you’re not caught off guard when birthdays and holidays roll around is crucial. There are many occasions to give people gifts outside of just the usual birthday and holidays though, including things like weddings, marking other milestones (perhaps somebody you know is retiring this year), or maybe you’re the kind of person who just likes giving gifts spontaneously because of the feels.
How to fix it: You can get a bit more creative with your gift budget if you need to, which is great news. Particularly if you’re crafty or handy, delivering a hand-crafted gift can add the personal touch that a store-bought one may lack, and you can potentially save some money in the process. My family is notoriously difficult to shop for. If we want something, we buy it ourselves. So, to cut back expenses on gifts, we just said “screw it, we’re not doing gift exchanges anymore.” Besides, the best part of getting together for the holidays is always the people. And maybe the food. Okay definitely the food.
If you don’t want to cut out gift-giving altogether, then following a similar approach as with the other two things on this list is easy enough.
No matter how you save for these things or minimize the expenses, the biggest take-away is that you’ll have things that come up in your budget that for one reason or another are unexpected. It’s life, it happens. Catching as many of them as you can up front, though, will make sure you’re able to keep on without missing a step.
What do (or hopefully did) you always forget to budget for? What tactics do you use to remember these?