I haven’t been shy about sharing our money story. In the words of Maya Angelou, “When you know better, you do better.” That being said, I’ve learned some valuable lessons this past year. Running numbers and figures has always been something I enjoy doing. I can’t explain how much fun I have figuring out how much money we’ll have each month. It might be a sickness.
At the beginning of this year, we created a budget binder. It’s nothing special. We have a master budget that lists all of our expenses each month and the subsequent pages are the budget for each month this year, with income and expense projections. For the most part, this method has been working.
That is until we hit a high birthday season. Our budget just collapsed and we fell victim to a common budget mistake. Our expenses weren’t realistic on paper. In an effort to be more frugal, we budgeted for every dollar. You may wonder how we managed so long if this was the case. Lucky for us, our income was higher than we had budgeted. Anytime we had surprise expenses, we pulled from the excess income but this meant we could have been saving that money if we budgeted better. Imagine if we didn’t have that small cushion to fall back on? We would have had to be creative.
Has this ever happened to you? How do you plan for surprise expenses?
In an effort to be better prepared, The Boof and I sat down to figure out a game plan. The following is what we came up with.
Step One: Grab a calendar
Most people are prepared for big gift giving holidays, like Christmas or Hanukkah. However, a common budget mistake is to underestimate your expenses and that includes gifts, holidays, car or house maintenance, and other extracurricular activities or hobbies. So our first step was to figure out every special day we would celebrate during the year. We wrote down birthdays, smaller holidays, one time expenses like car registration, and even designated date nights. It was quite the task but necessary in order to move on.
Step Two: Decide on your buying power
The Boof and I are lucky to make a decent wage. That being said, with two small children, we still pay a lot for child care. However, our oldest starts Kindergarten this fall and we will be relieved of a $520 monthly obligation. Talk about a major relief! That opens our buying power up quite a bit. Could we use the entire $520 on gifts, hobbies, or date nights? Sure, but we also have some other goals that the money could be used for. Out of the $520, we decided that $100 a month would be enough to juggle our new budget line item that we are calling “entertainment extras.”
Step Three: Find a place to put the money
There are different methods out there in managing your money. You could use the envelop system. Or you could open a separate checking or savings account. We decided to go with the envelop system. The reason? We know ourselves. That extra money in our checking account will ended up spent on something else. I try as hard as I can to control it but somehow it always happens. With the envelope system, we put the money away in an envelope and forget about it until we need it. It works for us.
Since implementing these three steps, we’ve avoided being surprised by added expenses. If they do come, we’ll be prepared.