Budgets seem pretty straight forward: List out your expenses, group them into categories, and commit to not overspending any more than you can fund each one. The problem arises when well-meaning consumers encounter expenses that they don’t budget for. Is it that they were unprepared, or is it due to the fact that they don’t know which budgetary category should house the expense? Here are some quick tips for dealing with those hard-to-nail-down costs:
Imagine the Possibilities
What sort of items may you be forced to buy in a given month, season, or year? Since life changes quickly, things you may not need to budget for in January may be absolutely necessary in August. Think of phases of your life and how they may also throw in a budgetary monkey wrench. New baby, sickness, and loss of job may all have you purchasing things you have never purchased in the past – all requiring a few new budgetary categories.
Categorize, but Allow for Flexibility
It’s less important to nail down the exact category that an expense will fall into than to set aside the funds to cover it. If you regularly have extra costs creep up that are outside of your normal budgetary categories, just designate a particular amount to a “misc” category. Be careful not to rely on this category too often, as it will have you missing one of the main points of a budget – tracking where you are spending your money. As long as it keeps you from getting into the red with your finances, however, it can be effective to lump the unknowns into a virtual financial clutter bin.
Go Ahead and Break the Rules
Many popular budgeting software solutions and personal finance books will offer to set you up with the basic budgeting categories needed to create your own personalized budget. I’ve always found, however, that my lifestyle is so far out of the norm that many of the categories don’t apply. If you’ve never spent a penny for gasoline (you don’t drive) or you can’t see yourself purchasing water (you have your own well), scrap those categories from your budget entirely. (Note: Some people prefer to leave these $0 budget categories in. It looks good or makes them feel good. Do what works for you.)
Alternatively, if you have special budget categories that you want to add (in our case, we have a special home school expense category), do so. It’s your budget.
Adjust as Needed
Since everything works in a cycle, budgets not withstanding, you’ll need to repeat these steps again and again over the course of your lifetime. As in my case, years may go by with the same budget items and categories staying constant. You may also have years (or even months) where the budget is less predictable.
Remember, it’s usually less about what kind of spending you’re doing and whether or not your income and habits can support it. Budget benders are those items that seem to be hard to allocate; budget busters, on the other hand, can put you in the red, and will prevent you from meeting your goals.
What budget categories are unique to you?