How To Budget For Irregular Expenses? – The 5 Steps You Need

I remember when I started my budgeting journey and how good it felt to create a plan and live through it during the month. But when the month end came, numbers didn't seem to add up. Later on, I found out it was because I didn't know how to budget for irregular expenses at the time.

Since I had no idea how to budget for irregular expenses, things like birthdays or even yearly car service were taking me and my wallet by surprise, making me unable to hit the financial goals I set for myself. But once I learned how to plan ahead while considering irregular expenditures, I was able to work those items into my monthly budgeting plan.

Regardless of the budget method you picked and how you currently budget, identifying and planning for your irregular expenses will help you hit your financial goals. So let's find out how to create a budget for irregular expenses.

What Are Irregular Expenses?

Irregular expenditures can vary from person to person and will depend on your circumstances. Every person's lifestyle is different, which makes their expenses and spending habits differ. However, when it comes to irregular expenses, they can be divided into two categories of expected and unexpected ones. 

As mentioned, irregular expenses will differ depending on your lifestyle and personal circumstances. So keep this in mind when reading some of the examples I will provide. What is a regular expense for you, can be irregular for someone else and vice-versa.

What Are Expected Irregular Expenses?

Expected irregular expenses are those you know will happen, but that don't occur on a monthly basis. These expenses are usually rare and happen once a year. These expenses can include gifts for your family and friends or holidays you were planning to go to

Examples Of Expected Irregular Expenses

• Auto: yearly car service, insurance premium, season tire change
• Home: property taxes, insurance premiums, lawn care
• Medical: annual doctor check-up, dental check-up, insurance premiums
• Special occasions: birthdays, anniversaries,
• Holidays: Christmas, Easter, Father's/Mother's Day, Thanksgiving
• Leisure/Hobbies: yearly holiday, memberships, lesson fees
• Other: credit card fees, annual memberships for Amazon, estimated taxes, education-related

What Are Unexpected Irregular Expenses?

Unexpected irregular expenses are those you did not anticipate you would have to pay for, including car service caused by your sudden dashboard warning light, impulse purchases, or any other emergencies like your boiler, which suddenly stopped working.

Examples Of Unexpected Irregular Expenses

Auto: unexpected breakdown, flat tire, registrations

• Home: boiler breakdown, pest control, replacements for unrepairable appliances
• Medical: prescriptions (non-monthly), dental work, emergencies not covered by insurance
• Pet: vet bills, prescriptions (non-monthly), diet changes
• Special occasions: weddings, friends/family's big birthday celebrations
• Other: impulse purchases, charity donations, replacements for lost items

How To Budget For Irregular Expenses?

To budget for irregular expenses, you need to identify and plan for all the unexpected expenses, figure out how much they will cost you, budget for them, and create an emergency fund.

Identify Your Irregular Expenses

The first step when looking at how to budget for irregular expenses will be identifying any unplanned costs that apply to you. The aim is to move as many irregular expenditures as possible into the expected bucket rather than having many unexpected ones. Where costs are known, like annual doctor check-up fees, this should be noted; others might need to be estimated.

The origin and amount of irregular expenses will differ from person to person on their lifestyle. For example, those with a car might need to consider expenditures related to yearly services, season tire changes, or air conditioning top-ups. If you are an active person that does a lot of sports, annual membership fees for clubs should be on your list.

The best way to identify irregular expenses is to look at your previous expenditure on bank statements/cash receipts for even up to 12 months back to spot any irregular expenditure spending. Next, consider any new/old commitments, such as annual membership for a gym or even Amazon Prime costs. Take your time with this exercise, and make sure you thoroughly think everything through.

Plan Irregular Expenses Ahead

Non-monthly expenses can easily mess up your budget by popping up once a quarter or a year, forcing you to exceed your monthly budget and even get into debt to cover them. This is why you should plan ahead once you have identified your expenses and any potential expenses that can occur due to your lifestyle and commitments.

You would look to grab a piece of paper or digital format, for example, Excel and a calendar. Then, looking 12 months ahead, you will want to list any upcoming commitments on a month-by-month basis, with known or estimated costs of these irregular expenditures next to them.

Once you have a month-by-month outlook for your irregular expenditure, you can determine how to budget those. However, to budget successfully for those, you will need to know their costs or estimated costs, which can prove tricky if this irregular expenditure is new to you since you just bought your first car or are trying to prepare yourself for an unexpected event.

Figure Out How Much The Irregular Expenses Cost

When the irregular expenditure comes under the expected costs category, you can estimate how much this will cost you. For example, insurance premiums, yearly car service, or holiday costs can be estimated by looking at your past expenditures and the amounts you spent on them. You can then add a 10% buffer on top of past costs to adjust for increasing prices.

Suppose those irregular expenditures are new to you or vary every year, like with insurance premiums. In that case, you can look to do a little research by asking your insurance provider for estimated quotes or looking up how much your yearly car service will cost for your particular car model.

Where some of the irregular expenditures are not expected, thinking about how to budget for irregular expenses might be a bit trickier. You will need to do more guesswork and estimates based on more research on, for example, amount of times the boiler breaks down in its lifetime and estimated costs, or the most common car faults in the model you own and expected costs of these.

Budget For Those Irregular Expenses

Whether you are budgeting as a couple or living on a tight budget doesn't matter. You need to include irregular expenses in every personal and family budget to ensure there are no surprises in your monthly budget. You can plan ahead for these expenses and ensure you have a budget category for them so that your account is not drained when their due date comes.

Having your dates and costs for your irregular expenditures noted down, which are either known or estimated amounts, you will then be able to work those into your regular budget planning to make sure you are aware and prepared for them to leave your bank account.

You can do this by adding up an estimated annual amount you will need towards all of the irregular expenditures, splitting it by 12, the number of months in the year, and putting aside this monthly figure into a separate savings account. This money can then be withdrawn when irregular expenditures come due.

For example, my total irregular expenditure comes to $9,000 a year, made up of car-related costs, special occasions, including family and friends' birthdays, holiday spending, and medical bills. The $9,000 figure means I need to save $9,000/12=$750 a month, which are money that I would transfer into a separate savings account to be able to cover my irregular expenditure when they become due.

Create An Emergency Fund

One of the biggest budgeting mistakes is not creating an emergency fund. No matter how much planning and detail thinking through you do, life might unavoidably throw something your way that you didn't plan for. For example, this might be an expensive car part getting broken in your car, which is very rare for your model, or complex dental work which needs to be completed as soon as possible.

Those unexpected and unpredictable irregular expenditures can seriously impact your budget. It might not only force you to ruin your budget for a month, but if the costs are high, you might need to forgo some of your financial goals in short to medium term, making you take on extra debt to meet the costs of those unexpected events.

Creating an emergency fund is fundamental when considering how to budget for irregular expenses. This is a separate money pot from your normal account or even your savings account that is used to cover your irregular expenditure. The purpose of having this fund is to be prepared for unexpected events that can protect your other financial plans from being ruined by a nasty surprise.

The amount you should have saved up in your emergency fund is recommended to be around 3-6 months' worth of your monthly salary. It will take time to build your emergency fund, and you should aim to save monthly amounts to build this fund. Take it in small steps to not strain your current budget. One month's worth of income is already a good start that should protect you from some of the income shocks you might face.

Conclusion

The most important thing when approaching your budgeting journey and how to budget for irregular expenses is to think about any expected and unexpected irregular future costs in as much detail as you can, linking this to any of your current commitments and personal lifestyle. Try to analyze past spending habits, as this can give you a good starting point for planning.

You might make mistakes at first, especially when some of the costs are new to you; for example, you just bought your first car. However, you must review, learn from the past and adjust for the future. Remember that things become easier with time, so don't give up on your first difficulties.