We’ve all been there. You’re going along, spending is on track, and then … something comes up. It’s the annual insurance payment, or it’s someone’s birthday, or there is an out-of-town trip, or an unexpected car repair. Now you are scrambling to come up with the money, and you find yourself saying,
“How can I get ahead when something always comes up?”
I want to make it clear that I am not talking about true emergencies, like job loss, a car accident, or a medical emergency. Ideally you have a separate emergency fund just for that. This is about those typical expenses that we should all probably be prepared for, but usually aren’t.
There are two important things to know about the “stuff that comes up.”
- Most people drastically underestimate how much all these things cost over the course of a year.
- Most of it is actually less random than you think.
In fact, if there is one thing I have learned as a personal financial coach it’s that it is the occasional expenses, i.e. the “stuff that comes up,” not the monthly bills, that can really sink people. They seem to come out of nowhere, they throw you off your game, they often cost more than you thought, and then there you are. Your plan for the month is shot and you feel frustrated and defeated.
So, what do you do?
For the first time ever, I am going to share with my readers the method that I use with my clients for dealing with the “stuff that comes up.” It is a simple method, but also very powerful!
Here is my simple method for dealing with the “stuff that comes up.”
Step 1: Make a list one year out.
The first step is to write out the next twelve months of the year, leaving space under each month to add things. You can do this in a spreadsheet, in a Google doc, on a piece of scratch paper, or in one of the beautiful planners that my friend Crystal Reynolds makes.
Then under each month you will list any occasional or annual expenses that you think will happen during that month. Some examples:
- Upcoming vacations
- Holiday spending
- Birthdays
- Annual insurance payments
- Annual memberships and credit card fees
- Pet wellness visits
- Salon treatments
- Tuition/class payments
- Professional services (like financial coaching!)
- Major concert, theater or sports tickets
- Seasonal shopping
- Home improvement projects
- Annual charity donations/events
- Annual car maintenance
You should also include things that, though you may not know WHEN they are going to happen, are probably going to happen at some point during the year, such as:
- Car repairs
- Home repairs
- Dental bills
You can just add these things in some random month. They may not happen that month, but this gets them on the calendar.
Do NOT include your monthly bills or or the things you normally spend money on each month. For example, if you see a lot of theater, that might be a monthly expense for you. If you are only going a couple of times a year, then it might be an occasional expense and you should include it on this calendar. For some people, clothes shopping is a monthly expense and should not be included. For others this is something they do a couple of times a year and they should list those times as an occasional expense.
Step 2: Add dollar amounts.
The second step is to add a dollar amount next to each item. You will probably have to estimate some of them – that’s okay for now! In the end your list will end up looking something like this:
This list is now what I call “Planned Expenses.” They are no longer just the “stuff that comes up.” Now they are things you are actively planning for.
Already we are making progress!
Step 3: Add them up and divide by 12.
The third step is to add up all of these Planned Expenses and then divide by 12. This is approximately how much money you need to be putting aside in your monthly budget in order to pay for everything on that calendar.
If you are like most people, it will be a higher number than you expected.
In fact, this is one of the things that can make people feel like they don’t know “where all the money goes.” They have underestimated how much all of these things that are outside of their normal monthly bills and spending actually cost. They can add up quick!
Even if it ends up being a high number, it is better to be realistic about it than to end up short at the end of the month.
Step 4: Incorporate that monthly amount into your budget.
Let’s say that the number you came up with is $500 per month. Take a look at the other elements of your budget, such as bills, spending, money for an emergency fund, and saving for your future. After all those things are paid for, are you able to allocate $500 a month to cover these “Planned Expenses?”
If not, then you will have to make some adjustments.
Are there things that you put on your Planned Expenses list that can be cut or reduced? Or maybe you can cut back on some monthly bills, or on spending? If you still can’t make your budget balance, is there a way you can increase your income?
Figuring this out is key to making sure that everything is covered, and that you are not falling behind each month.
Step 5: Start a Planned Expenses Savings Account.
I recommend having a separate savings account for Planned Expenses. You are going to be constantly taking money in and out of this fund, so it is a good idea to keep it separate from your emergency fund or other long term savings.
In fact, you can almost think of it as a “slush fund”—but one with a very specific purpose. It is there to make sure you have the money you need for all the things you put on your Planned Expenses calendar.
Each month you will look at what planned expenses are coming up, and if the total is less than the monthly amount you have budgeted, you just put the extra into your Planned Expenses savings account. If it is more, then you will take some money out of that account to help you pay for the things on your list.
Step 6: Review, Adjust, and Add To Your List Every Month
Each month when you are going over your budget, you will also go over your Planned Expenses list. You will update things that already happened with what the actual expense was, and you will review the things coming up to see if you need to make changes.
There will be things you forget to add—that is normal! Just add them in when they come up. There will be costs you will over or underestimate. That happens! Just adjust the cost when you know it.
If the changes you make cause the average amount per month to go up, then you may need to adjust your overall budget to cover it.
As you keep doing this, your estimates will get more accurate, and you will start being able to look at last year’s list to jog your memory of what might come up this year. Over time you will get better and better at being able to predict these types of expenses.
That’s it! That’s the method!
Five Big Advantages of This Method
There are five big advantages of using this method to deal with “the stuff that comes up.”
- A big part of money is psychology, and having a written-out plan for these expenses, instead of just having them come out of nowhere, can be a game-changer. When we don’t know what is coming we feel stressed and out of control. That makes it very difficult to engage with our finances, or make any kind of long-term plan for our future.
- It helps you get real about how much money you need to cover all these things.
- It gives you a chance to adjust the plan before the expense happens, instead of when it is too late because you already spent the money
- It gives you a chance to dream a little bit about what you want to do in the upcoming year. It is too easy to just focus on what bill is coming next, and not take time to really think about what we want to do in the next year. A calendar like this keeps you always looking forward, and not just in a hypothetical way but as a real plan.
- If you are in a couple, it gives you a chance to talk about and agree on expenses before they happen. For example, if you both agree in advance that you are going to spend $500 buying a new chair for the living room, then no one is shocked when it happens.
And there is a sixth bonus advantage …
The longer you do this, the better you will get at planning for and predicting expenses. The more you can predict expenses, the easier it is to start dreaming, planning, and doing some of the bigger things you want to do in your life.
That is when things really start getting exciting!
As Your Financial Coach I Can Help You With This and More
Planning for upcoming expenses—and having a ongoing system to deal with them—is just one of the things that I work on with my coaching clients. This helps them get in control of their money and start making a REAL PLAN for their future.
I walk my clients step by step through their monthly budget, paying down debt, money psychology, saving for retirement, building good credit, creating positive financial habits, learning investing basics, and many other things!
I offer a free 30-minute initial consultation and affordable rates. Coaching is over video calls and I do not sell financial products, just practical advice to put you in control of your finances.
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