Budgeting For the Big Expenses

Budgeting for big expenses can seem daunting, but with a good plan, you can manage your finances and prepare for these large purchases more efficiently and effectively. No matter how accurate and detailed your monthly budget is, life will occasionally throw a large and possibly unexpected expense your way. This could be a big medical bill, a car fix, or even an unexpected home repair. Because of these inevitable burdens, it may seem impossible to keep your budgets balanced from month to month. Thankfully, there are a few ways in which you can lessen the pain that these financial obstacles present:

1. Identify the Big Expense
   • Whether it be a car, vacation, home renovation or education, know exactly what you are budgeting for (If possible).
   • You should also determine the cost of the expense. Sometimes expenses are unexpected, so having a nice cushion in a separate account may be wise.
   • If you do know what the big expense will be, research the total cost, including hidden or associated costs (e.g. maintenance, insurance, taxes).
2. Set a Target Date
   • Determining your timeframe is critical to the success of expense planning.
   • Decide when you need the money for this expense. The shorter the timeframe, the more you may need to save per month.
   • Break down the amount you plan on paying. Divide the total cost by the number of months or pay periods until your target date.
3. Revisit your budget
   • Once you know how much you need to save every month, look at your budget and figure out where you can account for this added expense.
   • The large expense is likely to be important, so it would be smart to budget for it as a fixed expense.
   • This means placing it alongside rent, car payments, student loans, or utilities, and above recreational spending on restaurants and entertainment.
   • Implementing these changes can be hard, but with a bit of discipline it is completely plausible.
4. Evaluate
   • If things are a little tight on the budget after accounting for the big purchase, it may be time to consider taking money out of a retirement account to help cover the deficit. Though this can come with penalties and taxes if done incorrectly.
   • It’s wise to put your money in a place where you know it will be safe from yourself. Save yourself from the temptation of spending it before you can put it to use.
   • If you have extra money coming in on certain months, perhaps stash it away so that you can build up your cushion.