What’s Pushing You Out of Your Budget Zone?
The single biggest reason why people can’t live on a budget is their failure to plan for inevitable expenses. Sometimes people refer to these as “unexpected” expenses - I’m not sure why, since some of the things they include as “unexpected” aren’t unexpected at all, just irregular.
“Unexpected” is really just another way of saying, “I don’t want to have to think about it.” Be honest. Did you really think you were going to get through the year without your seven-year-old car breaking down at least once? Did the fact that you needed new tires really come as a surprise? Did you actually think the window that got broken last summer was going to mysteriously heal itself?
Home maintenance is one of the areas where people act all surprised when the bill comes due. I tell people they should be budgeting between 3 and 5% of the value of their home for annual maintenance. So if your house is worth $200,000, you need to be setting aside a minimum of $500 a month to keep it in ship-shape. People just about choke when they work it out for themselves. A couple with a $400,000 home informed me there was no way they could afford $1,000 for home maintenance. Really? Your most important asset? You can’t afford it’s upkeep? So you have people paying through the noses on their mortgages watching their homes crumbling around them because they don’t want to have to deal with the realities of home maintenance. That’s how the new roof becomes an “unexpected expense.”
The same holds true for household appliances. Do you have an appliance replacement fund? Are you saving up for the next electronic item that will fizz out, or will it be an “unexpected expense?” How about the new snowsuits the kids will need next winter? It’s not like these things aren’t inevitable, it just that no one wants to think about them, so we act all surprised when we’re faced with the expenses. And then we whine about not having any money.
The following oversights can also have a big impact on your budget:
Annual costs. It’s easy to forget about the annual car, home or life insurance coming due this month if you don’t have it built into your budget as a monthly amount. Ditto your car licence, your health club membership, and the kids’ soccer fees.
Then there are your property taxes, if you pay them directly. And if you’re self-employed or working on a contract basis, you should also be setting aside the taxes you’re going to have to come up with next April.
You may be able to wear your jeans until the bum is bare, but the kids will outgrow their clothes before they wear them out, so you should have some money budgeted for them on a monthly basis.
Pet care cost are predictable till Poochie gets sick. If you don’t have pet insurance (I’m not convinced of the value of this, but am willing to entertain arguments), then you should have a little set aside monthly in your budget for your inevitable trip to the vet.
People don’t budget for gifts. Whazzup with that? In January, I start setting aside the money for birthdays and Christmas. I love buying presents, but always do so knowing I’ve got the money to cover them sitting in my savings account.
Medical costs. Yes, I know we have universal medical coverage, but not everything is paid for, no matter how “universal” it is. So if you aren’t budgeting for things like glasses, the dentist, cold medicine and pain killers, and all the other stuff you’ll end up buying, you’re bound to run into some “unexpected expenses”.
There are a whole bunch of things in your budget that are going to get more expensive over the next year. Some big signals include the cost of heating, gas and, eventually, food. If you’re not building a buffer into your budget to take these increased costs into account, your budget will fail, yet again. So add a 10% buffer to each category. That should take some of the sting out of future higher costs and keep your budget on an even kilter.
April 11th, 2008 at 2:01 pm
Cars off warranty: I will done paying for my car within a year (YEAH!) so I will put 2 monthly payments’ worth in savings (not used to haaving the $ anyway). Then, I will simply increase my monthly maintenance estimate by $60.
Budget buster: pets! The yearly vet trip has a typical cost, so it is easy to budget. Not easy to bugdet: lump on a dog! The first surgery, the second surgery because the first is NOT conclusive, the mini surgery for the drain tube! And guess what happended to the other dog a few months later (ok, a single surgery was needed)! I already budget 1 noticeable pet event per year, but this one was REALLY bad. Good news: the two dogs are doing great and enjoying spring! So I recommend an extra $500-$1000 aside for pets minimum and get ready to retweak the budget.
BTW: do not forget kennel/boarding fees!
Medical cost: you might have insurance for meds, but does it cover 100% and do you have the cashflow while you wait for your reimbursement?
April 11th, 2008 at 5:37 pm
I’m making sure I have money for these sorts of things in separate accounts. I’ve just had to pay for the dentist (fortunately not a staggering amount) and came out of my “emergency” fund which, while still fairly small at this point, is for that exact reason. Here’s looking forward to health benefits in the next several months! In the meantime, however…
I also have three cats and while nothing is a concern at the moment, I put aside $50-$100 per paycheque in a fund specifically for any future vet visits. Ever taken a pet for a “simple” dental visit??
Even the fact that I’m just starting out on the right foot for these accounts is a huge burden lifted from my shoulders. I know I’ll be able to pay for new tires or car maintainence, take care of my cats, and won’t have to whip out the credit card to buy milk, groceries, pay a bill, etc. afterwards. It does take some dedication and determination but it makes so much sense and once you see (and feel) the difference, you’ll wonder how you ever managed before.
I’m a very new Gail fan, but after watching only a couple of episodes online I’m already hooked!
April 11th, 2008 at 8:18 pm
I decided this year to take some of Gails’ steps toward REALLY being debt-free next year. It’s the same promise I make every year as a resolution, but this time I really want to make it so.
I started with the jars and a small RRSP contribution as well as the savings account monthly contribution. I already have been paying my debt off fairly aggressively, but never had savings, so I was very excited to see it grow to $500 in a short period of time. THEN along comes the new brakes on my 41000 Km van. Didn’t see that coming, but had to pay for it with the savings. So now I’m back at $0 again, which bites.
I wish I could say March was a slow trickle of expenses, but as planned as I was to use our income tax for the Summer camps for the kids, I was NOT prepared for owing the same amount we got back in a return in taxes plus the initial $1500 deposit for my oldest child’s braces. So March was a very expensive month. Luckily I’m self-employed, so I paid myself an extra salary to cover the extra $3000 in expenses, which has now wiped out the business account again.
My question is, why oh why does it seem that the best laid plans can go up in smoke? And then where do you start again? It kinda takes the wind out of my sails when these things literally always seem to happen just as the light at the end of the tunnel seems brighter and closer!
Well, I guess I start back at square one and add an extra couple of months to my ‘debt-free in a year’ plan. Back to my mantra that at least I’m making money to be able to pay money. Sigh…
April 12th, 2008 at 12:06 am
Appliances can really be a kicker. How come a B-B-Q costs as much as a whole new kitchen stove? Instead of going for the shiny new Barbeque at the end of season last year, we swallowed our pride and scuffed and polished and replaced the burner on our old one. For $60 it works just fine (still an embarassing eyesore next to my sister’s stainless steel one). We are west-coast, year-round barbequers so it is worth it to us. Our dishwasher blew out a pump last year too. But we did the unheard of and FIXED it!!!!! It cost $100 for the pump and my hubby did the repair himself. Its working great now.
We have an emergency line of credit arranged with the bank. Happily it stands empty right now! In the past when in a pinch we have drawn on it, it has a great rate thanks to our good credit ratings, and we pay it off very agressively. Since we cleared it, we have been saving more money as a cushion for things like new tires, struts and the like for our aging vehicles.
I’ll tell you a secret: The best investment I ever made was marrying a mechanically inclined man! The big guy is worth his weight in gold!
April 14th, 2008 at 5:25 pm
Do you live away from family members? If so, do you have money for an emergency flight back? Budget buster indeed!
April 16th, 2008 at 10:49 am
Prescription costs (the prescriptions my husband and I are both on for life kind of ones) and Dental. These are the two major “life” expenses that just don’t seem to be able to be paid for with our small “other” jar.
I’m not sure where that money should be coming from or how. If both these expenses are averaged out monthly, it’s about $400.
Suggestions from others who have to pay medical out of pocket much appreciated.
April 16th, 2008 at 1:05 pm
I have a questions about budgeting categories: where do you budget for diapers and creams/wipes? in “groceries”? or the “other” jar? How about haircuts, are they a necessity - so “health” or is it a “misc”…..same with stuff like shampoo, toothpaste….etc…. what about lunch in the cafeteria - is it groceries or entertainment or allowance??? ahhhhhh, maybe I am being to precise?
April 16th, 2008 at 1:23 pm
Christine, I don’t think it really matters if you call your regular ongoing medical expenses “life” or “other”, just as long as you allow the $400 for it every month somewhere in your budget. Maybe for your family you want to have another jar just for medical.
Mary, again, I don’t think it matters if you call these items “groceries” or “other”. For me, anything I buy at the grocery store, which includes personal care products, comes from my grocery budget. Don’t get too wrapped up in the labels, the point of the system is to purposefully direct your spending by using cash and by writing it down.
April 16th, 2008 at 3:12 pm
Christine:
See a previous post of mine about the ‘flex-jar’. About 2% of my take-home is NOT preassigned. On the months the flex-jar has money left, put it towards your emergency saving / cashflow account.
Sorry, but rebudgeting seems needed for you if you do not get reimbursed. A prescription jar is in your very near future.
April 16th, 2008 at 5:12 pm
Do y’all realize that the jars are tied to the Interactive Budget Worksheet, and that if you do a line budget (which is what the IBW is), all the money you need for the jars should be there? I just thought I’d mention it.
The jars are a tool that help you to track your variable expenses. Your BUDGET is what keeps you in line financially.
April 27th, 2008 at 8:14 pm
After college when I got my first “real” job I finally started budgetting for things like my car insurance and registration. Every month the month the money automatically moves to a separate account and once a year I move the money into my checking account to pay the bills. Then a couple years ago when my car insurance went down I kept putting the same amount away. The extra money has become my car repair fund it has worked relatively well. If you can set it up so the funds move automatically you will be more likely to forget you have a bunch of cash sitting around. I recently started house hunting and so I have started to revamp my budget, so I am trying to plan for as many suprises as possible.