Do you ever get frustrated at any expense that you weren’t expecting to pay for? I experienced this frustrating expense just the other week.
As most of you probably know, my wife and I have a Siberian Husky named Zeke. Right now he is considered our child since we don’t have a real one yet. We have all of Zeke’s expenses planned out. We set aside money for his pills that we buy in bulk every six months, they are cheaper this way. We set aside and budget for his food every month. We even set aside money for toys. The one thing that we didn’t plan for was a trip to the vet.
Dogs need yearly shots, who knew? I didn’t. Anyway, when my wife took Zeke in to get his yearly shots we were both blown away at the price of these annual vaccinations. They don’t tell you the price of anything until after everything is said and done. As you might imagine a set of yearly shots might be around $40 -$ 60. Not a chance, they were $150. The real kicker didn’t come until the end of the exam when the vet told us the sore between his paws could require surgery and cost over $600! Now instead of what we thought would be a routine $40 expense could potentially be ten times as much.
So as you could imagine we were a tiny bit upset. I knew we had an emergency fund saved up for these types of things, which is a topic for another day.
But, sore paw aside I was more upset about the vaccinations, the annual expenses we were not accounting for. This reminded me that the end of the year is the best time to build your budget for next year.
Now that we know the cost of the yearly vaccinations Zeke needs, we can properly set aside money each month so that when the time comes for Zeke to get his shots the money is there.
Here are the steps I will be using to get the budget back on track for next year:
Export your spending. Most if not all banks let you export your spending to PDF or Excel. If you are handy in excel you can quickly organize your spending and see how you can use that information to predict your spending for next year.
If you aren’t already you need to sign up for Mint.com. This awesome tool will do all the tracking and categorizing for you so at the end of the year you can print a report on where your money went, talk about control!
Find the unexpected expenses. Divide by 12 to get a monthly amount and start incorporating these costs into your monthly budget. Set that money aside each month into a separate account if you have to, a place where you won’t touch it. This is not an emergency fund as you know these expenses will come up. Think of your annual payments that you always forget about but know will happen. Hint: Insurances.
Most people pay monthly insurance premiums. Did you know by paying annually you will save money on the interest they charge for paying monthly? Pay annual then set up monthly savings amounts so that the following year you have the money to make the annual payment. The small interest savings will add up over time!
Repeat every year until you have a nice budget going with no more unexpected expenses. Try not to get frustrated like I did, It takes time to account for all of those unexpected expenses.
This process should be simple, Planning for unexpected expenses should help you stress less about “where the money is going to come from” and focus more on your financial goals. By changing this one habit you can stop being like everyone else and really start taking financial control of your life!
Do you set up and budget for unexpected expenses? If no, why not?