Imagine your car breaks down unexpectedly, and suddenly you’re facing a costly repair bill you didn’t anticipate. It’s a stressful and overwhelming situation to be in.
Irregular expenses, like those surprise car repairs, sudden medical bills or home maintenance, don’t follow a regular schedule and can put a real strain on your wallet if you’re not prepared. But by setting aside a small amount each month, you can keep your budget on track and avoid relying on credit when surprises arise.
Planning ahead can help you stay on top of your finances and keep you out of debt no matter the situation. Read on to learn how to save for irregular expenses and build a resilient budget that accounts for these unexpected costs.
Understanding Irregular Expenses
Irregular expenses are those costs that don’t come up every month but can occur from time to time. Some are predictable–some are not. They can be divided into three types: seasonal, emergency, and one-time. Seasonal expenses include things like holiday gifts or summer vacations—these happen at specific times of the year, but not every month. Emergency expenses are those unexpected costs, like a car repair or medical bill. One-time expenses are usually big, rare purchases, like buying a new appliance or paying for a major home renovation.
Unlike regular monthly expenses such as rent, mortgage payments, or utility bills, irregular expenses can easily throw off your budget and suddenly create financial stress. If you’re not prepared for these costs, you might find yourself relying on credit cards, which could cause you to take on more debt than you can handle.
Strategies to Anticipate Irregular Expenses
The good news is you can prepare for irregular or unpredictable expenses so you’re not caught off guard. To help plan for these, keep a list of potential costs that could arise throughout the year. You can do this by reviewing your past spending. Take a look at your bank statements from the previous year to spot any irregular costs that came up. Did you have to replace your furnace or pay for an extra dental check-up? Make a note of these expenses so you can budget for them in the future.
Another strategy is to create a calendar for your recurring irregular expenses. For example, if your home insurance is due every December, mark this date on your calendar. This way, you can set aside funds throughout the year for when these payments come due.
Budgeting Techniques for Irregular Expenses
Managing irregular expenses can be challenging, but effective budgeting techniques will help you tackle these costs without taking on debt or withdrawing money from your emergency fund. By planning ahead, you can minimize the impact irregular expenses have on your financial well-being. These budgeting techniques include:
The Sinking Fund Method
Sinking funds are money you set aside each month for specific savings goals. To set up a sinking fund, prioritize a few of your irregular expenses and figure out how much you'll need to save each month to cover those costs when they arise. Keep these funds in a place that's easy to access but not too tempting to spend. A high-yield savings account is usually the best option as you can link it to your chequing account for automatic monthly transfers, plus it’ll earn you interest. You can also set up sub-accounts through your online banking and nickname each one based on your goals.
While you can create a sinking fund for any irregular expense, be careful not to have too many. You’ll want to balance your saving goals so they fit within your current budget. Remember, your regular expenses (like utility bills, rent, etc.) should be accounted for first.
The Envelope System
The envelope system is a cash-based approach to budgeting that can help you better track your spending. Basically, you put your budgeted cash for each expense category into separate envelopes. Each envelope becomes your spending limit for that expense. Once the money in an envelope is gone, that's it until next month.
This system can be easily adapted for irregular expenses. To start, figure out how much your irregular expenses are and when you expect them. For example, if you know your car insurance will be $600 in six months, set up a dedicated envelope for it. Then, divide the total cost by the number of months until it's due—in this case, $100 a month. Put that amount into the envelope each month so you’re ready when the bill comes due.
Automated Savings
If you don’t want to have separate sinking funds for each irregular expense, consider creating a single savings account for all these costs and automate your contributions. By setting aside a small amount every month, you'll accumulate a fund that can cover any unpredictable expenses when they arise without putting too much strain on your budget.
To budget for irregular expenses this way, start by figuring out how much you’ll need in a year and then divide that amount by 12 to set a monthly savings goal. For example, if you think you'll need $1,200 a year, try to save $100 each month. You might also consider setting aside 1-2% of your monthly income if that works better for you. Be sure to keep an eye on your savings and adjust as needed.
Tools and Resources for Managing Irregular Expenses
Rather than trying to pull together money at the last minute, having a budget can help you prepare for surprise costs. There are many online budgeting tools and apps that can help you establish a realistic spending plan, including Credit Canada’s free Budget Planner.
When creating a budget, you’ll want to divide your expenses into categories: regular expenses (mortgage, rent, utility bills, groceries, gas) and irregular expenses (car repairs, home maintenance, vet bills, gifts). Not sure what these costs might end up being? You can use an online calculator, like our all-in-one Expense Tracker, to help you estimate your saving needs for future irregular expenses. Once you have a budget, you’ll be more aware of how you spend money, which will improve your ability to manage expenses and achieve your financial goals.
Practical Tips for Staying on Track
To stay on track with your budgeting, be sure to regularly review and adjust your savings as new, irregular expenses come up. It’s important to prioritize building both a sinking fund and an emergency fund—this way you’ll be covered for those irregular but anticipated costs, as well as unexpected emergencies. Resist using these savings for any other costs by setting clear rules on what qualifies as an emergency. Remember, budgeting only works if you stick to it!
