We’ve written before about the special challenges that faculty often deal with in managing money. Creating a budget and sticking with it is Personal Finance 101, and having a system set up to keep track of your money is important.
But what about all those irregular expenses that come up? Think about the bills you pay that come up once or twice a year: maybe it’s property taxes if you’re not using escrow, a lump membership payment to a community supported agriculture (CSA) group, or some kind of fee related to grad school or a child’s school fees. Even if your monthly budget is great, unless you allow for these miscellaneous expenses, you’re not really budgeting.
Consider setting up a separate monthly budget category that takes into account all these types of expenses. To do so, add up all these miscellaneous expenses you expect in a year and divide by 12.
For my household, over the years this total has included eye exam and dental cleaning fees, graduate school fees, university parking fees, CSA membership, expected car maintenance costs, plane tickets for holiday travel, veterinary costs, and yearly piano tuning and carpet cleaning. Items go in and out as appropriate. For example, I no longer have to pay a parking fee, and we’re renting our home so carpet cleaning is not necessary. But new costs have entered this total as life changes.
You can handle this budget entry in different ways. You might actually transfer those funds to a separate savings account, which is easily done with online banking services. Or you might deduct the funds from a simple check book, knowing that the funds haven’t actually gone out. Then, when the cost is incurred, you can either transfer funds to pay for it or allow for it in your checkbook register.
One caveat is that it will take a bit of time to build up this fund, so cash flow should be monitored. A potential scenario is that you might be putting $300 per month in your separate savings account, but the first month of this procedure you incur a $400 charge for your CSA membership. This can be handled by perhaps floating money on a credit card until your second month fills in another $300 in the fund, for example, or just pulling the money from a basic savings account and then returning those funds the next month. But once you have a fund built up, facing irregular, fairly large expenses is a lot easier to deal with.
How do you allow for irregular expenses in your budget? Do you have expense items that might fit well in this procedure? Let us know in the comments.