You’re cruising along and your bank account is looking good. But then, surprise! You get the bill for your car insurance premium and everything is out the window.
The Budget Flaw
This is one of the flaws that most budgets face because they are weekly or monthly. But the timing doesn’t align with all the bills and wreaks havoc on the plan when you least expect it. Some bills come in monthly. Others come in annually or quarterly. But you normally won’t have an increase in income at the same time you have an unexpected or unplanned increase in expenses. It would be nice if it worked that way, but it’s wishful thinking.
What if you had a fund set aside to pull from when these bills come in? You sometimes see these in company budgets: designated funds. They know that they’ll need to replace their employee computers some time in the future so they set aside dollars to pay for it when the need comes. This is exactly what we do to handle these abnormal bills.
I used to kick and scream about this because it cut into my fun money in a month, but I have to admit that it really helps stress levels. All that’s needed is some way to calculate and keep track of the allocated dollars in your budget. Create a separate fund for each of these bills and calculate how much you would pay if the bill was actually monthly (or weekly, depending on your budgeting period). That’s how much you need to pay yourself each period. When the bill comes in, just transfer the money you need into your budget for the month (increasing your income) and pay it. No stress involved.
The Savings Tab
I talked about this in the Time & Dollars article. There are items for my business that I know I will need to replace in the future. I want to upgrade my phone and computer regularly, so I need to put money into those designated funds in my budget. For the business budget, I’ve created a tab called Savings in the spreadsheet to handle everything for me (see example budget). It takes the amount of savings I have for the month, allows me to allocate it to each fund, and shows each fund’s balance.
The end goal here is to plan for these supposedly “unexpected” expenses. They aren’t truly unexpected when I know how much they will cost ahead of time and when they will be due. As long as I plan and save ahead, stress doesn’t have to enter the equation.