We’ve all experienced unexpected expenses – maybe it’s a car repair, a doctor’s bill, or a last-minute flight to see a sick relative. Having a budget doesn’t mean these types of unexpected expenses go away. Having a budget should mean that when life happens, you’re in a far better position to deal with the whammies.
A lot of what we teach our financial coaching clients is how to plan for 80 percent of your life. You can’t always account for that remaining 20 percent, but by covering the large portion that you know of through planning, the whammies that life will throw at you become far more manageable.
Creating a Budget that Mirrors Your Life
In the blog post Why I Budget, I wrote about how budgeting helps us focus on money in a productive way, freeing us to focus on what really matters. In this post, I want to give you some pointers on how a budget can help you, especially when life happens.
The two keys to creating a budget are to understand your income and your expenses. That includes:
Income from all sources including W2, 1099, child support, etc.
Monthly expenses such as rent or mortgage, utilities, car payments, and groceries.
Additional monthly expenses such as payment to student loans and credit cards and money for going out to dinner, movies, coffee, pet expenses, etc.
Savings for specific life events such as vacation, car repair, new car fund, medical, pet, or gifts.
That means every expense that you know of is accounted for on your budget. That also means that you are treating your savings accounts as an expense. Sure you may not need clothes this month, but you will need new clothes eventually so why not allocate for that expense in your budget. I recommend to my clients that they have savings accounts for each savings category – a vacation account, a car repair account, a clothing account, a gifts account, the list goes on. Having many designated accounts will help prevent you from spending money designated for car repair while on vacation. More importantly, you have peace of mind knowing the exact amounts you have saved for specific expenses. Your budget is already set.
Budgets Aren’t Perfect
While you may not have the entire expense saved (think: car repair), you have part of the expense saved. You may not know that you’ll need $2,000 for a car repair in three months, but you’ll at least have a portion of that already in a designated account. When life happens – and it always does – you can look to your budget and savings accounts for peace of mind.
Are you interested in learning more? Schedule a Eureka session! Here we teach you how to plan ahead so you can save, spend and pay down your debt. Get a plan, get ahead and stop winging it financially.