Gotcha! – Planning for Periodic Expenses

Do you know that feeling you get when you open the mailbox and find your car registration renewal?  Does back-to-school time send you into a financial frenzy?

You’re not alone, many of us get caught off guard when these less-typical expenses “pop-up”.  

Similar to holiday savings accounts offered by many banks, you can open a savings account put money in it every month to cover these less-frequent-but-often-large expenses.

planning for unexpected expenses

Here’s a plan for building a cash cushion, or “pop-up” savings account.  

Here’s how you begin:

  1. Refer to old bank statements, or get out a calendar to trigger your memory of out of the ordinary expenses.
  2. Write down your expenses (lumped by month) that fall outside of your normal spending.  Include such items as:
  • car registration
  • back-to-school (school-supplies, clothes, haircuts, etc.)
  • dentist and doctor co-pays for routine check-ups
  • oil changes
  • birthdays/holidays
  • pet vaccines and annual exams

Once you have the full year accounted for, add up the total of all these periodic expenses.  When you do – it’s a big chunk of change!  You can now divide that number by 12 and this is the amount you need to set aside every month in a special savings account to cover pop-up expenses.

 

Note:  You’ll notice that some months might require more cash to cover your periodic expenses than you have built up in your savings.  If your pop-up expenses are heavy in the beginning of the year before you’ve built up the cushion, you might have to contribute extra money to your pop-up savings in the beginning to cover everything.