Non-Monthly Expenses – How to Budget for Lump Sum Payments

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If you are trying to live on a budget and you have not planned for non-monthly expenses, it is just a matter of time before your budget is destroyed by one of these time bombs lurking just below the surface!

Anyone who has ever tried living on a budget knows that the biggest budget busters are not regular monthly expenses, but non-monthly expenses forgotten in the budget because they only come due periodically.  Annual, semi-annual, quarterly, and occasional payments break the bank far to often… so today let’s explore how to get control over these common budget busters.

You Have To Plan

If you do not keep a budget, then start.  If you do not manage your money, your lack of money will manage you.  Sick of living paycheck to paycheck?  Sick of never having any money?  Sick of using credit cards and wasting money on interest?  Then start budgeting!

Once you start budgeting, one of the first problems you will face will be a non-monthly whammy that you forgot to plan for.  I promise… don’t worry, it happened to us too.  Here’s what we did to make sure it never happens again:

  1. Make a list of non-monthly expenses.  Brainstorm as many as you can remember and write them down.  You may consider breaking your list into Fixed Non-Monthly Expenses and Variable Non-Monthly Expenses
  2. Create a separate savings account for your non-monthly expenses. Scroll down to see why I use Capital One 360 and how I create my sub-accounts for this purpose.
  3. Fund new account automatically each month. Hopefully your bank gives you some sort of automatic savings plan to disperse a certain amount into the new fund automatically each month – yet another great reason to use Capital One 360 for banking.

Make a List of Non-Monthly Expenses

Here is an example list of non-monthly expenses that are normally paid via lump sum payment – there are fixed and variable non-monthly expenses that you can plan for.

As I already mentioned, the list in the picture above is just an example of expenses others may have.  I am providing it to help you brainstorm and remember all the non-monthly expenses you may have floating around.  Remembering what all your expenses are is actually the hardest part of this entire exercise.  You will undoubtedly forget an expense here or there, but you can adjust when the time comes – at least you have most of them planned for now, and eventually you’ll nail them all down.

For us, our personal list is made up mostly of auto expenses with a few others thrown in for good measure.  We also limited ours to anticipated fixed non-monthly expenses for now.  We’ll tackle the variable non-monthly expenses later.

Create a Separate Savings Account for your Non-Monthly Expenses

For many reasons that I often bring up, I am a HUGE fan of banking with Capital One 360.  They make saving easier because they allow you to easily create sub-accounts for all your separate savings goals.  Budgeting for non-monthly expenses basically involves saving the money over the course of the year so you have it available and will not be taken off guard when the lump sum payment comes due.

If you do not bank with Capital One 360, sign up here.

If you already have an account with them, follow these simple steps to create a sub-account for your non-monthly expenses account:

  1. Click on “Open an Account.”
  2. Under “Capital One 360 Savings” click “OPEN NOW.”
  3. Select the type of account you wish to open – I always use “Capital One 360 Savings Account – Joint.”
  4. If opening a joint account, enter the joint account holders information.
  5. Name your account “Fixed Non-Monthly Exp”, choose the account you wish to fund from, and enter the amount you wish to open with and click “Continue.”
  6. Review the info for accuracy, click the two check boxes, and click “Open Account.”

Fund New Account Automatically Each Month

Yet another reason to love Capital One 360… their Automatic Savings Plan feature.

Now that you have your account your sub-account created go to your “My Accounts” tab and click “Automatic Savings Plan” and set up the amounts calculate above to fund your Fixed Non-Monthly Exp fund with the necessary amounts.

Now whenever a non-monthly lump sum expense rears it’s ugly head it will not be a budget buster!  When it arrives simply log into your Capital One 360 account, do an “Instant Transfer” to move the money from you Fixed Non-Monthly Exp fund into your regular checking account and pay the bill accordingly.

It’s that simple!

Now you have no excuse to let lump sum payments sneak up and bust your budget.

What About You?

What non-monthly expenses do you have?  Do you they take you by surprise?  Let us know some of the strategies you use to handle these expenses so they don’t bust your budget!



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1 Michelle Traudt

Great advice Matt! The non-monthly expenses are easy to forget about, thanks for the reminder and a plan to keep us on track!

2 Lydia

Looks like you and I have the same thoughts regarding budgets and nonmonthly expenses. I wrote a post about a year ago detailing how I plan for irregular expenses (http://mymoneychat.blogspot.com/2008/11/non-monthly-expenses.html ).

3 Matt Jabs

Excellent article Lydia!

4 Matt Kelly

Matt: Including non-monthly expenses in your budget is what makes it a realistic budget. You are right on with your advice.

The other piece that Cheri and I do is keep a spreadsheet with each non-monthly expense detailed so that we know how much we save for each category and how much we spent so that we always know how much we have left for each category. And yes, you can “steal” from one category to fund another – if a car repair is more than you have saved you can take from the clothing category.

5 Matt Jabs

That is great advice. Sort of like a pseudo “envelope system” for non-monthly expenses.

6 karyn

Thanks for the info! I have been “burned” by those types of expenses – they seem to come up so quickly. I am curious about your membership to the country club…seems, so, oddly “unfrugal”!

7 Matt Jabs

Oh heavens no! We don’t have a membership to a country club… those are just examples of some non-monthly expenses that folks may have.

Sorry for the confusion, thank you for bringing it up so I could clarify! 🙂

8 Peter

Great advice Matt. When we first started doing our budget, one expense that we forgot all about (even though we shouldn’t have) was our car insurance. A couple of months later we were stuck with a $600 bill and we hadn’t budgeted for it. We won’t make that mistake again.

9 Jason @ MyMoneyMinute

Nice article, Matt.

@Peter – that just goes to show that a budget is an active and evolving thing! It takes time (and a few lumps) to get it down. Once you get it down, life changes! What it does do, is force you to anticipate future expenditures rather than react to them.

10 Jeff

Matt,

I love ING too. It makes automating bill payment sooo easy. Good walk through on the planning part. Budgeting for non-monthly items is what use to get me in trouble. It kept me living pay check to pay check while not being able to pay down debt because of the non-monthly bills. Using almost the same method as you just discussed, we were able to throw money into each ING account on pay day. Then the payments are drafted at the later date. Just the other day my car insurance was drafted, I completely forgot about it but since everything runs smoothly it was paid without a problem. That was a great feeling.

Jeff

11 Matt Jabs

It is a great feeling… and the coolest part is, you don’t even miss the money that goes out. And that can also be a lesson in saving – you don’t notice little amounts automatically taken out.

12 Melanie

If you do nothing else financially, do this. Christmas, vacation, school supplies–3 kids, once a year, an easy hundred bucks!– then pictures after that– I never think of this stuff. The vet bills, the doctor copays. How about that birthday present, and why did I have three aunts born in October? Or the license plates–renewable right before Christmas or right after, just because our birthdays are in such financially flush months.

These used to make me crazy… until I started this fund. And now, it’s so peaceful. We do the same thing, with an ING account, and then I have a spreadsheet so I can split the deposit up into the categories– and track the expenses. However– be warned– these savings accounts will only allow 6 withdrawals a month. Most months that’s not a problem, but if you have 3 sick kids in one week and car tags the next week– and those weeks are in December when you’re buying Christmas presents, you’ll run over 6 very quickly.

My advice– track the irregular expense amounts and do a transfer per week. In December do pre-emptive transfers in the beginning of the week and take it out in cash– to stay on the Christmas budget. 🙂

Great post. This is the budget saver to end all budget savers.

13 Matt Jabs

It’s true Melanie. If people struggling with budgets can grasp these 3 simple facts:

1. Keep a spending journal
2. Use the envelop system for cash categories
3. Plan for non-monthly expenses

Everyone would be able to do it!

14 Robert Espe

I use Crown Money Matters Software (now Money Map, Crown Mvelopes, and mint.com are online solutions) to do the same thing on my computer while keeping all my money in one account.

In addition to my $10k emergency fund, I keep a fund that is equal to my catastrophic deductible for the year and pay all medical bills from there (build it up over a year, one paycheck at a time).

I also assume that one car will cost $2k in maintenance a year and budget accordingly per month, for me that has been about right (it is less when the vehicle is newer, but even new vehicles have a maintenance schedule, and the difference accumulates to offset the cost of an eventual new vehicle).

15 Matt Jabs

Interesting Robert. We also set quite a bit aside for auto maintenance, but not that much. We do $1,200/car/year.

What does everyone else do? I think this would be a good post! Maybe tomorrow. 😉

16 Broke M.B.A.

Great advice Matt. I also use ING Sub Accounts for my sinking funds and have monthly automated deposits set-up from my checking account. It’s taken several months for us to truly get our budget right, but the lack of surprises every few months has been well worth the effort.

17 Matt Jabs

Yeah, join the club. It took us about 8 months to get our budget “working.” Now it will continually be updated, but it has actually been “in place” and helping for 2 months. It is great. I can honestly say – mark my words – I will budget for the rest of my life. And I will also keep a spending journal.

18 Kelly Whalen

We do a yearly budget which includes a lot of these expenses.
Since we are paid bi-weekly I’m using those “extra” checks as short term savings for non-monthly expenses.
It forces us to live off of less, and gives us a good buffer.

19 Matthew

The financial version of the real estate adage “Location Location Location” might very well be “Plan Plan Plan”. I’m glad to see that’s Step #1.

Good stuff.

20 David @ Money Under 30

Great post, Matt. I think this is what trips most people up with budgeting…it’s funny how various “non-monthly” expenses seem to come up every month!

I do the exact same thing…contribute to a dedicated ING savings account for these.

21 dayday

Great advice! I learned the hard way, my car insurance is due each January, way too close after Christmas. Learned to budget for this expense about 3 years ago, I’ve embraced that it’s due directly after the holiday’s, due Jan 11th, 2010… I don’t overspend for Christmas because I know the premium is due soon.

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