We Divided All of Our Irregular Expenses By 12, and Set Aside That Much Money Every Month
It seems to happen every month. That “oh, yeah” expense. Auto registration, annual membership fees, not to be out-done by a school carnival or a night out at a festival. Suddenly, your meticulously crafted budget needs to accommodate an irregular expense and you have to figure out where to cut back.
Setting and keeping a budget is hard enough, but once the frivolous spending is under control, things get reasonably predictable. In my family, we had worked hard over a number of years to knock down credit card debt, school loans and the like. All the usual suspects were paid off, save the mortgage and a car.
We hadn’t really addressed holiday spending, though. In our budget, we had a savings goal each month. In December, we found it convenient to forego saving that month and use the money to buy gifts instead. At the time, we figured one month off the savings plan would not set us back that far.
But one year, in the middle of the holiday hustle, we discovered that one of our vehicles needed tires. All four. At once. $#@&%!!
Not wanting to disturb our savings account, the decision was made to put the cost of the tires on our trusty credit card, and pay that off with the savings dollars intended for the next month too. Two months in a row won’t set us back that far.
Wrong-o moose-breath. That all-too-familiar “pay it off later” rationale we worked so hard get rid of was back. We were well aware of the months it could take to balance the consequences of poor discipline. Time to re-evaluate.
We exercised a little extra discipline in the early days of that new year and were able to pay off both the tires and our annual shopping spree purchases with cash. In doing so, we got back on track and came to the conclusion that we never wanted to do that again.
A quick Google search will tell you that, in 2017, a set of four tires will set you back around $650. Financing that purchase just makes it worse, because the interest inevitably pushes the final cost much higher than the original purchase price. Combine that feeling with the unhappy truth of knowing that every mile you drive is literally wearing away value. Yuck.
Enough of that. It’s time for the good news. It turns out that this cycle is entirely preventable, for two simple reasons. The interval for tire replacement is reasonably predictable, and the price of tires doesn’t fluctuate much.
While everyone’s driving habits vary, the rate at which tires degrade is well documented. When selecting a tire, the manufacturer often rates the tire for a certain mileage. With that estimate in hand, making a plan for your next set of tires boils down to basic arithmetic.
Neither my wife nor I would get particularly high marks during an annual review for accuracy at recording mileage. We took the easy way out and checked the odometer, then divided by the number of months we had owned the car. Next, we divided the expected mileage of the tires by the monthly mileage average to produce an estimate of how long we had before our new tires would wear out.
For example, if we purchased tires rated for 48,000 miles and drove 12,000 miles per year, we could expect to replace the tires on that vehicle once every four years or so. Easy-peasy. All things being equal, since we are a two-car family, we plan to buy a set of tires every two years or 24 months.
As mentioned earlier, the average cost of four tires is $650. We’ll round that down to $648 for easier division. $648 divided by 24 months is just $27 per month that needs to be put away in order to avoid putting new tires on a credit card. On our monthly budget, we added a line item for $27 toward new tires and put that money away until the time came. Problem solved.
We have employed this technique for years and it works great. We have cash standing by for the next time one of our vehicles needs a new set of wheels. As any seasoned car owner knows, tires can need repair at any time, so it’s also a great way to cover those expenses when they arise. Having some, if not all, of the money tucked away again avoids causing a disturbance to the monthly bill routine.
Hooray! We solved one problem. But… at the top of the article, I listed several other irregular expenses. What about those?
Well, it turns out that our tire criteria applies to lots of our formerly “unpredictable” expenses. To refresh, our criteria are: periodic need with low fluctuation in cost. Hmmmm. Auto-Registration. Membership fees. Family Fun Night at the carnival that rolls through twice a year. GASP!! Birthday and holiday presents!! True story, my wife and I actually performed a tandem face-palm as this dawned on us.
What my wife and I discovered was that our world was filled with expenses that seemed to surprise us (and our budget), but were really periodic and we just flat forgot about them in the hustle and bustle that is the daily grind.
Armed with a blank annual budget sheet, we began filling it in with everything we could think of. Our credit card membership in September. Our warehouse membership in August. State automobile registration fees and annual inspections due in April and October.
Then came the birthdays. In January, my mom’s birthday. In May, our daughter’s, followed by mine in June. Cousins, brothers, sisters, grandmas. It was a long list. Then came the hard part. Assigning a value to each one. We decided to spend $100 on birthdays and Christmas presents for our immediate family, so for the four of us, $400 for birthdays and $400 for Christmas presents, $800 per year. Divided by 12, you get $66.66 each month.
Then we added in all the rest of the items and came up with a total amount to put away each month. Some months we put in more than we take out. In other months, we take out more than we put in, but at the end of the year there’s still money for holiday gifts and a chunk of change toward a set of new tires.
One other great way to use this method is with auto insurance. Our automobile insurance company offers a number of incentives depending on how the premium is paid. One price reduction comes for scheduling automatic payments, and an even larger discount is available for paying the premium as a lump sum. Saves us about $200 each time we renew.
This method really does work wonders year after year. Instead of being surprised by both the birthday and the expense, we are only surprised by how fast birthdays come around. Seems quicker each year. The good news is that for all those cousins and grandmas, the cost of their gift is already taken care of. In addition, we have saved thousands on car insurance over the years and were able to quit worrying about paying for an auto inspection.
Now, all we have to do is focus on having a good time at the birthday parties, carnivals, and community art festivals that we’ve already budgeted for.
Matthew Unkenholz is entertainment technology professional in all things audio and video mapping. He also writes the occasional article and lives with his wife and two children in Texas.