Took me 3 years to realize I was budgeting wrong by not accounting for irregular expenses

I always wondered why I'd be on track for months then suddenly blow up my budget when a car repair or annual subscription hit. Turns out adding a sinking fund for those things and dividing the yearly cost by 12 was the obvious fix I was too stubborn to see.

3 comments

3 Comments

andrew_baker917d agoMost Upvoted

Wait, did you say dividing the yearly cost by 12? That works okay for things like a Netflix subscription, but for irregular stuff like car repairs you really need to track the average cost over a few years, not just one year. Otherwise you end up underfunding the sinking fund when a big expense hits and you're back to square one. I've been doing this for about two years now and the first time my transmission went out, I was still scrambling because I hadn't saved enough. So I'd add a little buffer, maybe 10-20% extra each month, just to be safe.

hannahj4917d ago

Started tracking every irregular expense for a full year before setting up my sinking fund. Car registration, annual insurance premiums, even my pet's vet visits, all went into a spreadsheet. Then I averaged the total over 12 months and added a flat 10% buffer. What @ben_fisher said about using a percentage of the annual average makes sense, but I found that locking in a fixed monthly amount that's a little higher than the average works better for me. That way when something like a tire replacement comes up, I've got enough sitting there without having to go back and recalculate everything.

ben_fisher17d ago

Stick with the 10-20% buffer idea but think of it as a percentage of the annual average, not a fixed number. The problem is that car repairs can swing wildly year to year, so just adding 10% on top of a single year's average might still leave you short if you hit a really bad patch. What worked better for me was taking the average of the last three years of expenses and then adding 15% on top of that, which smoothed out the lumps.