How to Budget for Big Expenses

Do you feel like you constantly lose track of your money? Even if you budget your regular bills, you may feel like you cannot keep track of where your money goes. Sometimes even the best-laid plans fail, especially when large, unexpected expenses occur. Here’s how to budget for big expenses.

Rather than going over budget each month, budget every expense, including the major, yet infrequent expenses. For example, from time to time, you might need a new mattress, a new washing machine, or new carpeting on your living room floor. Any of these major expenses can quickly throw your budget for a loop if you do not prepare.

Even if you have the money in your account now, it may cause issues with future expenses if you spend the money and then don’t have enough to cover your other expenses. For example, you need to buy a new water heater, so you use the money in your account. However, that money was earmarked for your mortgage and now you can’t make your mortgage payment on time.

One expense could have a domino effect on your budget, making it difficult to keep up with your payments and life’s necessities.

Instead, if you budget your major expenses now, you can prevent this from happening. Having money to fall back on (money you have separated from your monthly bills budget) will better prepare you to handle your money over the long term.

So, how do you prepare yourself for the major expenses in your life? Check out the top ideas below.

Save a Rainy-Day Fund

The easiest way to manage large expenses involves saving a rainy-day fund, but your rainy-day fund differs from your emergency fund.

Rainy-day funds include money you set aside for large expenses, such as a new furnace, car repairs, or an unexpected medical expense. Contributing to your rainy-day fund monthly helps you save the money needed when unexpected expenses occur.

Rather than reaching into your regular spend account, you can spend your rainy-day funds, replenishing them each month as your budget for them. Figure out the right amount you can contribute each month and do it consistently. You can use the rainy-day fund year-round to fund your large expenses.

Don’t confuse the rainy-day fund for an emergency fund, though. Build a separate emergency fund to use only in case you lose your job, fall ill, and can’t work, or when some other event or scenario compromises your income.

Budget Annual Expenses

Everyone has annual or even semi-annual expenses. They don’t have to cause problems when you budget for them, but when you don’t, they can ruin even the most prepared budget.

Make a list of all your annual expenses. Think of things like homeowner’s insurance, real estate taxes, homeowner’s association dues, holiday gifts, auto registration fees, car maintenance, home maintenance, pet wellness appointments, membership dues, and vacations.

Total the cost of your annual expenses and determine how much money you should save each month to afford them.

Knowing your total costs, and how much of your monthly budget it takes to cover them helps ease the financial burden when the expenses are due.

Shop around to Keep Your Expenses Down

When you plan your major expenses, not only can you budget for them better, but you can find the best prices.

During certain times of the year, you will find better deals on large purchases than at other times. For example:

• Cars often have the best deals around holiday weekends, especially Labor Day and Memorial Day

• Mattresses prices hit their lowest levels around President’s Day, Memorial Day, and the Fourth of July

• TV prices drop in November, particularly around Black Friday

• Large appliances are most affordable in November, as well as around major holidays, including Labor Day and Memorial Day

• Furniture prices drop around their restock time in January and July

• Outdoor furniture prices go down after the summer months, hitting lows during the fall

Even if you shop for large items other times of the year, if you plan accordingly, you can shop for sales, comparison shop for the best prices, and negotiate the best deals.

Why You Benefit from Budgeting Your Major Expenses

When you budget your major expenses, you are better able to handle your money. You don’t have to worry about major expenses wiping your account clean, leaving you wondering how you’ll pay your mortgage, car, or utilities.

Other ways you benefit from budgeting your major expenses include:

• You’ll think about spending – It’s easy to impulse buy when you know you have money in your account. But if you don’t budget, you don’t know if that money can be spent. If you spend anyway, you could end up with financial difficulties.

• You’ll work savings into your budget – When you know your annual or large expenses, you know what you need to save each month to pay for them. It helps you be more accountable every month rather than letting the expenses creep up on you when you can’t afford them.

• You become a more mindful spender – Staying aware of how much money you need not just today, but all year makes it easier to make wise financial and spending choices. You may spend less, invest better, and/or save more. It’s easier to save and invest when you have an intended goal.

• You can easily focus on your financial goals – Whether you want to save for a down payment on a house or plan a wedding, you can more easily reach these goals when you have a clear plan for your money. Budgets force you to look at areas where you might otherwise overspend. For instance, buying a $5 cup of coffee every day will cost you $100 to $150 a month. Know this, would you rather save this amount and apply it towards your money goals?

Budgeting seems complicated, difficult, and time-consuming, but it’s worth every second (and dollar). It helps you stay accountable; you will know what expenses are coming up, and how you will afford them. You will not fall behind on your regular bills and you also won’t have to put off the major purchases you need in life.

No one can predict 100% what will happen in life, but if we best prepare ourselves with an emergency fund, rainy day fund, and careful planning, we can make the most out of our budget and our finances.