Why Budgets So Often Fail (Part 2)
Last week I talked about the fact that sometimes budgets fail because you use numbers that are way too low for your actual life, so you end up blowing every category every time.
Another reason I’ve found why budgets fail is that they don’t account for the non-recurring expenses that everyone has but everyone forgets to save for. A great example of this is gifts for loved ones during the holiday season and year round for birthdays and other holidays.
Every year we want to buy our loved ones gifts during the holiday season, but because we so often forget to budget for them, we end up using credit cards to buy those gifts. If and when we finally pay off that holiday debt, we’re often so relieved that we don’t think to start saving for next year.
The solution to this is to make a list of all of the important people in your life. Then, decide how much you want to spend on each of them for birthdays and the holiday season. Include any other holidays you can think of when you’d want to buy them a present (think Mother’s Day, Father’s Day, Easter, any graduations that might be happening this year, etc). Total up the expense for the year for all people and all holidays, divide by 12, and that becomes the amount you need to save per month in a separate “gifts” savings account, and set up that automated monthly transfer (more on how to implement this can be found in my blog post about how to budget by paycheck). When it’s time to buy the gift(s), the amount of money in that savings account is your budget. When you make the purchase(s), transfer the total amount of the expense from your gift savings account into your normal checking account, and just like that the gifts are paid for without interrupting the flow of your monthly expenses or causing you to go into debt to pay for them.
Another category that most people similarly don’t budget for is car repairs. If you own your car, then you know that eventually your car will need maintenance. Oil changes are easy to predict, but other things such as new tires or new brakes are harder to predict. While this category is less precise because you don’t have much control over it, it’s still important to open the savings account and make automated deposits every month. A good place to start would be $50/month into the car repair fund.
It sounds like a lot, but that’s only $600/year. 4 oil changes (one every 3 months) and a new set of tires could easily wipe that out. While your car won’t need new tires every year, it’s likely to need something, such as air filters or brakes. If you don’t have a big expense this year, as would be expected with a relatively new car, and you have money leftover in the car repair savings account at the end of the year, don’t convince yourself that you saved too much and can move that money to another fund. You’ll eventually need an expensive maintenance item, or you’ll get into an accident and need to pay your insurance deductible, and it might be a $1,200 bill (2 years worth of savings at $50/month). If you get lucky and have the amount you need to spend in the account, great! Move the money from your car repair savings account to your main checking account, and you’re good to go! If, however, you only have $300 saved on a $500 bill, at least now it’s only a $200 unexpected expense rather than having to come up with the full $500 all at once. Any amount saved is better than none.
Other non-recurring expenses that you should be saving for monthly include a vacation fund, clothing fund, getting your hair done fund (if you go in less than once a month), your car insurance (if you currently pay monthly, one of your goals could be to save up enough to pay for the 6 month premium, saving you money), and home repairs/decorating/moving costs (if you like to decorate for different seasons and/or plan on moving when your lease is up). Some of these expenses can be kept to the amount saved (vacation, clothing, and hair savings), and some of them are more unpredictable (car insurance, moving costs), but the same principles apply to all. If you know you’re going to spend the money, you should make sure you have some amount of money set aside for them.
Do you want help figuring out what savings accounts you need, opening them, and setting up the monthly auto-deposits? Schedule a Q&A call to learn more about coaching!
What savings accounts do you have set up already? Are there any I mentioned that you were forgetting about? Let me know in the comments!