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Conquering the “Next Month Will be Different” Mindset

Broken piggy bankI’m sure we’ve all done it at one point or another. We look at our credit card statement and realize we went over budget. When we look closer, we see the culprit: an unexpected expense or a regular, but infrequent, expense. It could be a trip to the doctor, a car repair, a gift for your friend’s birthday, an oil change, a new year’s supply of flea medicine for your pet, etc. And we say to ourselves, “well yea, I went over budget, but now I don’t need to get new flea medicine for another six months, so I’ll be fine next month.” Except next month rolls along and it’s something else.

Your regular expenses may fall within your budget, but if you don’t account for the unexpected or infrequent expenses each and every month, you’ll find yourself in this familiar situation far too often. The solution is to build these types of expenses into your budget, so you’re prepared when they come up, and you’re pleasantly surprised when you go through a whole month with no extra expenses and wind up under budget.

Planning for the Unexpected

It’s a bit difficult to plan for something unknown, so it’s time to do a little data mining. Log into your Mint account and look at your spending history. If you’ve set up a budget within Mint, the first place to look is your uncategorized expenses. Review several months of history and determine, on average, how much you spend on necessary unexpected expenses in a month. That’s how much you should budget each month for unexpected expenses. Mint allows you to create your own budget categories, so create a category for unexpected expenses. The tricky part, of course, is figuring out where the money should come from. You could reduce your budget for eating out, you could commit to driving less, or you could reduce your entertainment budget. The sacrifice will be well worth it the next time you need to have your brakes serviced and the cost is already built into your budget. And if you have a month with no unexpected expenses, you’ll have found yourself with some extra money to put into your emergency fund, invest, or have some fun with.

Planning for the Infrequent

Mint has a nifty feature that allows you to budget for regular, but infrequent, expenses. Let’s say you pay your car insurance in one lump sum every year. Mint allows you to enter the payment amount and the frequency, and divides it across 12 months to build it into your monthly budget. The tricky part with this one is not using the earmarked money for other purposes. For instance, when I have extra money sitting around in my savings account, I invest it. It’s easy to forget that the extra money isn’t really extra – it’s just not needed quite yet. That’s why it’s a good idea to also create a second savings account for these infrequent expenses. You don’t need a separate account for each expense, just one account that is designated for all predictable, infrequent expenses. That account only gets touched when you purchase something that the money was earmarked for. Once you’ve used Mint to figure out how much you should allocate each month, set up the account. You might put $90 in each month for your yearly car insurance payment, $15 for your quarterly oil change, $40 for your every-other-month pet food purchase, and $20 for your twice-yearly flea medicine purchase.

With these two budget revisions put into place, next month really will be different. Something will probably come up that you didn’t expect or forgot to plan to for, but this time you’ll be ready for it.

6 Responses to Conquering the “Next Month Will be Different” Mindset

  1. It can be hard to budget for irregular expenses that come up a couple of times a year. I either save the whole amount and put it aside, or budget a little bit each month and keep it in my online savings account until I need it.

    • Gen Y Finance Journey

      It’s so helpful to earmark the money for irregular expenses. Otherwise you see money sitting in your savings account and forget that it’s already been budgeted for a purchase.

  2. I call these “Savings Buckets” in my budget spreadsheet. Love this idea!

    • Gen Y Finance Journey

      I like savings buckets. I think one of the things that often comes back to bite us in the ass is that we assume we can keep track of everything in our heads. There are just too many different bills and expenses to make it feasible. It’s much easier to just create different buckets to keep everything organized.

  3. I sort of do envelopes with a spreadsheet. I have envelopes for absolutely everything, including renewing my driver’s license and passport even though that’s not very frequent. There are too many little things to use targeted savings accounts, so I just keep everything (even property taxes, which are somewhat expensive) in my checking aka transaction account and track how much is allocated to what there. The little things that should have been expected used to drive me crazy, so this works great for me. On the other hand, some people would hate budgeting $1/month for a driver’s license!

    • Gen Y Finance Journey

      See, I’d rather make several targeted savings accounts than keep all the money in one place and track how much is allocated to various purchases elsewhere. But to each her own, whatever works for you!

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