Dealing with unexpected expenses
One common question that I hear people asking is how to handle unexpected expenses. It seems that no matter how much planning we do, some things slip through the cracks. A haircut, a birthday gift for your friend, leaking oil in your car—things quickly start to pile up.
This might even make us think that budgeting is not worth it. If nothing goes according to plan, maybe we shouldn’t do budgeting at all?
It’s all about trade-offs
Budget is just a projection. Life is unpredictable and you’ll never be 100% accurate on how you’re going to spend your money. Successful budgeting is about making trade-offs: if I need this one thing, what can I give up for that? If I need to repair my car, should I skip restaurants this month or reschedule barber’s appointment for the next month?
To make these trade-offs, it’s important to keep track on expenses that are made outside your budget. In Decent Budget, we have a “budgeted expenses percentage“ which shows what portion of all your month expenses were paid for using your budget. If you buy something unplanned, budgeted percentage will be reduced. To bring it back to 100% you need to give something up in return—to withdraw funds from another budgeted category. This way you’ll never spend more money than you originally intended.
Making budget more detailed
Unexpected expenses could also appear when budget is too abstract. For example, if you have “Food” category in your budget but ran out of funds due to eating at restaurants, you might want to break down your “Food” category to “Groceries” and “Eating out”.
Budget granularity depends on everyone individually. Some go through the month without much fragmentation, while others like to prepare budget as detailed as possible. To find a good spot, look for symptoms—categories, where spending went over than you originally planned and look for ways how to split that into different budget entries.
Planning for the longer term
Expected expenses can easily become unexpected when they are far into the future. You won’t be thinking about upcoming car insurance payment six months from now until it’s time to pay. You have to make a list of all your upcoming expenses and save up money for them upfront.
This is why we have recurring transactions in Decent Budget. You can put down all your upcoming payments and expect them in advance, so you won’t be caught off guard when they’re due.
Set up a dedicated fund
Some expenses are too hard to predict in advance. This is why setting a dedicated fund for them is a smart choice. In Decent Budget, you can create a vault “Unexpected expenses” and add it to your budget through budget allocations, so it would slowly fill in every month you create a new budget.
When unexpected expense occurs, not a problem. Use your saved funds and you’re good to go!
Rethinking about what’s important
Finally, it’s always healthy to question whenever a certain expense is really essential to you. A lot of things aren’t and could be substituted with a little bit of creativity. You can grow tomatoes in your balcony instead of buying them at the store. You can sew your torn shirt instead of buying a new one. You can even save money on gas by biking to work instead of driving a car.
The habit of spending less and looking for opportunities to save money can go a long way—not only for the benefit for you, but also for the environment. And that has never been more important than it is today.