This is Part Four of my five-part, eight-week series on The Beginner’s Guide To Budgeting
Now that you’ve had a week to set up your envelopes we need to look at those, ahem, other categories that we’ve been gleefully ignoring. You know those FLUFF (fun life expenses under false finances), misc and other ones expenses that you bury your head in the sand about.
PREPARING FOR CONTINGENCIES:
I call these EXpected and UnEXpected EXpense EXceptions ( EUEE’s, or better yet I like to call the ‘EX’ Factor). You kind’a feel the same way about these as you do your EX. You hate it when you accidentally bump into them on a day you haven’t showered yet, decided to run to the store in your pajamas to pick up ice cream and brownies because you are spending the entire day watching a Meg Ryan movie marathon and you want to drown your sorrows about the 15 lbs you just gained….oh, geez, sorry! Yes, you hate it when those expected and unexpected expense exceptions just happen to come around. Apparently I have issues.
This is also known as the less traumatic anticipatory budgeting (AB), or that well known “rainy day” fund. It’s putting money aside in anticipation and/or planning for those expenses you know (or don’t know) you will have every month/year that hit just like clockwork and no matter how far you put your head into the sand. We all have those little life emergencies that we know are in the foreseeable future (property taxes or Christmas presents) or take us completely unaware (car needs new suspension). Wether we like them or not they will happen. But we can set up budgets for those so they won’t hit us so hard and we can pay cash for it (or most all of it). You may already have some categories for those from Part One especially if you tracked your expenses in the month of December and that is when you buy all of your Christmas presents. Might be a hard number to swallow for some.
For those yearly expenses, either expected or not, if you have a ballpark of what you might need for them you can take that amount and divide by 26 (or however many times you get paid a year) and that is your budget for that expense.
Let’s use Christmas as an example:
Say you spent a total of $1,735.00 on Christmas this year. And probably the majority of that had to go on a credit card(!). If you create a Christmas envelope based on what you spent last year….Next Christmas will be paid for in cash!
SO LET’S DO IT: $1,735.00 / 26 = $66.73 ROUNDED UP IS $70
$70 per paycheck for an entire year and you will have $1,820 to spend Next Christmas without batting an eye.
This method can work for any EXpected or unEXpected EXpense in your life. The only catch – you have to have enough money in your pay period after paying your FMB (fixed monthly bills), FME (fixed monthly expenses) and funding the other envelopes. Let’s use the example below:
If this is a new envelope for Christmas, as you see, you will need to find somewhere to come up with the extra $70 a paycheck.
- Maybe you trim back your out to eat for work and start taking leftovers more often. There is $40 right there.
- Maybe you get your haircut every 10 weeks (easier for us longer haired girls) and you can trim your haircut envelope down another $15.
- Maybe you pick up the dog sitting job your Mother’s neighbor has been asking you about.
With a little maneuvering and creativity you are on your way to a very Merry Christmas next year without the stress of bills to pay afterwards.
If you have items that really only fall under FLUFF and you just don’t have any wiggle room in your budget (it’s a real budget now!!) and it’s hard to justify, you’re going to have to make some cuts. On the other hand if you have your debt paid off and your savings is built up then by all means, FLUFF away!
The advantages for creating budgets for the EX-Factor are many:
- The money builds up in your account/envelope giving you a HUGE amount of comfort.
- You don’t have to rob Peter to pay Paul or use a credit card to supplement the expense every time.
- Virtually no risk of over drafting your checking account.
The disadvantages? Hmmm, not seeing any, are you?
Envelope budgeting can also be fun. With a little planning, a new expense can be paid for in cash – and let me tell you, that feels good! (i.e. why we have a Braces envelope) or saving up for something special like a vacation!
SO TAKE THOSE CREDIT CARDS AND FREEZE THEM IN A BLOCK OF ICE IF YOU HAVE TO, BUT DO NOT USE THEM AND DO NOT SPEND ANY MORE MONEY OUTSIDE OF YOUR BUDGETS.
In the next and last part, Part Four, I will talk about paying off your debt and how to build a savings.