Working An Unpredicted Expense Into The Budget
As I mentioned Friday, my spouse and I have gone forward and purchased a long-term disability policy for him. This is an expense we deem necessary, but one I didn’t predict at the beginning of the year when I came up with our monthly budget. Therefore, I have to tweak our existing budget to absorb the expense for the rest of the year until I do a complete budget reassessment in December. The expense isn’t that huge, only about $69 a month, but since I do zero-dollar budgeting, where every dollar is accounted for and assigned a purpose, there isn’t $69 left unless I take it out of the debt elimination money I earn above and beyond our budgeted income.
That isn’t the option I want to go with, because the entire point of earning those extra snowflakes is for them to be for debt elimination - not a normal part of our budget. Once you start budgeting with “extra” money, it is no longer extra and becomes something you depend on to make ends meet. So ideally, the $69 needs to come out of our budget somewhere.
And how to do that, is to look over our budget and figure out areas we might be spending less than we’ve budgeted, and can find $69 per month for the next 5 months. In our budget, the area I found it was our annual expenses fund. We put away $50 per month each month for annual expenses, and right now that fund has about $70 in it, but we only have one annual expense left this year, a car registration that is about $40. Looking at what we budgeted as our annual expenses, I quickly determined why we have extra there - we replaced our furnace this year, and usually we pay about $180 a year for the annual maintenance on the furnace, a/c and water heater, but we have a one year service contract included with the furnace. Since we don’t have to pay that $180 this year, that is where the start of the money for the disability insurance is going to come from. The extra money in that fund plus the money we put away every month will cover the next 3 months of disability insurance payments. By then, we’ll have hopefully adjusted for the expense (or paid off my spouse’s student loan) and will continue paying it from there.
The key to absorbing a new expense? Look for places that you have wiggle room, and take advantage of them. Ours right now is our annual expenses fund. Keeping track of your spending and knowing where your money goes makes it possible to reassess mid-course and adjust.
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August 18th, 2008 at 7:23 am
Wow,how efficient! What budgeting tools do you use to have that info so efficiently? Also, where do you keep the money for annual expenses? Thank you for sharing the nuts and bolts of your journey!
Elizabeth
August 18th, 2008 at 9:03 am
That’s so true, “Once you start budgeting with “extra” money, it is no longer extra.” I suppose that explains why so many people continue to off-budget despite raises and bonuses. We operate a “zero-dollar budget” too, so when an unexpected expense hits, I’m usually trying to figure out how to reallocate the money. Thanks for this tip.
August 18th, 2008 at 10:10 am
@Elizabeth - I use the free spreadsheet version of perabudget - I think it is at pearbudget.com/spreadsheet . I actually right now keep the annual expenses $ in the checking acct and keep track of how much of the checking acct is annual expenses (and other carried over expenses month to month) on paper - at some point, I shall turn it into a savings account but I haven’t yet because I am still thinking about the best way to do that, for me.
August 18th, 2008 at 4:34 pm
GREAT! Its so helpful when you lay out your thought process for these issues. Many of us are tempted to bumble along with fingers crossed
We found some wiggle room this year, too. Since DD#2 is at college and “renting” we had to figure some changes elsewhere. One -albeit not enough- area was with car insurance. In speaking to a rep, I found we could save a bit by lowering our guesstimated average mileage. I’d been tracking one car since January, and knew another is essentially sitting (using a scooter instead), so was able to really lower the estimated mileage. Saved ’bout $300. Also switched scooter’s insurance company and saved another $500. Not enough, but helps. That and -GAK- Fed loans. DD#2 is working long, hard hours, but its just not enough
Thanks for the post!
August 18th, 2008 at 5:21 pm
Interesting learning about zero-budgeting, and have been following along for awhile.
My question is tho if the furnace maintenance money was going into the annual expense category, and you bought a new furnace eliminating the need for the maintenance for a bit, then should the furnace maintenance money have been taken out of the annual column and put into the ‘extra’ column? Or do the updates just happen once a year? Enjoying learning about zero-budgeting. Thanks.
August 18th, 2008 at 9:11 pm
For those annual expenses (or other irregular expenses) I’ve been using a savings account at the same bank with my checking account (separate from the ING Direct account that holds our long term savings.) Once a month I transfer the allotted amount into savings (right after the paychecks arrive), then I can use electronic transfer to move the money back into checking just when I need it (transfers are immediate.) I keep track of the amounts in each category on a small spreadsheet. I find it really helps to get it out of the checking account…it makes it all the clearer just how much is _really_ left in the checking account.
August 18th, 2008 at 9:43 pm
@ marci - I personally do minor adjustments all the time but bigger ones once a year. this is, in the case of the annual expenses fund for example - I save a little every month all year for them total, so adjusting it once a specific expense is eliminated is a little complicated.
But my way is not the only way! heh.
August 21st, 2008 at 11:36 am
Oh the joys of wiggling the budget!
When I have to wiggle normally I just let chips fall where they may. If I have some budget category that exceeds what I have budgeted for the month I usually anticipate “borrowing” money from another category or anticipating that I will be able to borrow money in the future from a the same category. I track all my overages and underages each month on a different spreadsheet to help me see what has happened over the year so that at the end I can get a big picture to see if everything smoothed out over the year so I don’t have to make too many mid-course adjustments to my spreadsheets.
August 23rd, 2008 at 1:58 pm
I’m glad you’re making the adjustment so that you can buy the insurance. I truly hope you’ll never need it. But I think it’s an incredibly smart purchase.
You’re absolutely right about needing to find wiggle room in the budget. Certainly, if pressed, my husband and I could find things to cut down on. We’d be grumpy but for something so important, it’s obviously worth it.
I think any static budget is a dangerous thing. It sounds like yours is constantly evolving, which is the way to go. Our particular budget has to be a tad more nebulous than I’d prefer, since my husband’s health problems mean we never know those “little” details like how many $15 copays we’ll have in a given month.
So bravo to you for not only having a pretty clear budget but also being able to update it frequently (and accurately).