Budgeting For Irregular Expenses

I’m about to build our household budget for 2016, which is to say that I’m going to take a copy of our 2015 budget, adjust the expenses for inflation (and necessity), and simply plug those numbers into an Excel spreadsheet. It’s easy to forecast our expenses for the next year when five years of spending history is available at our finger-tips.

Related: How to build a better budget

Dealing with irregular expenses

I like to assign a job for every dollar when I make a budget. That means matching our financial goals to our saving and spending to make sure that we stick to our plan for the year. But we all know that expenses can vary widely from month-to-month. I try to plan for those irregular expenses – such as Christmas gifts, decor, travel, and holiday food and drink – in advance so that the money is there when we need it.

But many of us don’t plan this way at all. Instead, we wing it and hope there’s enough room in our chequing account, overdraft, or credit card(s) to get through an expensive Christmas season. Around the water-cooler it has become all-too-familiar to hear co-workers complaining about holiday spending, accompanied with an aw-shucks, what-can-you-do-about-it shrug at the thought of a big Visa bill in January.

Then we play catch-up in the new year, hoping a year-end bonus or raise will kick-in and get us out of a pinch. When those don’t come to fruition because of tough economic times, we continue making minimum payments on our holiday bills, holding out hope for a juicy tax refund come April. Soon it’s July and our thoughts turn to summer vacation plans – something else we haven’t budgeted for since we’re still paying off our Christmas bills – and the debt cycle continues.

Related: Do you need a formal budget plan?

I’ve been there before. Instead of planning and budgeting for next year, I was always playing from behind and thinking of ways to use income from my future-self to pay for my past-self’s expenses. It took a solid year of cutting discretionary spending – dining out, travel, gifts, alcohol – before we caught up and could start proactively planning our future spending.

I had a great chat this week with Chantel Chapman, the blogger behind Holler For Your Dollar, and host of a national series of workshops called Adulting 101. We talked about Canadians taking on debt over the holidays, often without a real plan to pay off their December splurge. Ms. Chapman says that a lot of people don’t think of the holidays as something they have to save for like a trip. Instead they just think, “Oh I’ll put these extra things on my credit card and deal with it after.

When talking minimum monthly credit card payments, Ms. Chapman brought up this handy calculator from the Financial Consumer Agency of Canada, which shows that it would take nearly 11 years to pay off a $1,000 balance by paying the minimum amount each month.

Related: Why do we save?

She sees people fall into the credit card trap during the holiday season because it seems more acceptable to go into debt to buy a present for someone else rather than splurging on themselves. Then there’s peer pressure and the need to show-off for your friends on social networking sites like Facebook and Instagram:

“Instead of keeping up with the Joneses, today we’re keeping up with the Kardashians.”

Ms. Chapman says that if debt is unavoidable this holiday season, at the very least go into it with a plan to pay it off within three months. If you can’t do that, she says, you’re deluding yourself to think you can afford to spend the money today.

Final thoughts

It’s smart to save for the holidays in much the same way as you’d save for a trip; by setting aside a portion of your paycheque each month into a separate savings account designated for Christmas spending. Of course that means knowing in advance how much you want to spend – i.e. having a budget.

Related: Do budgets allow for overspending?

As for me, I’m looking forward to building my budget for next year and knowing that I’ve accounted for irregular expenses like holiday spending, in addition to one-time expenses such as when our house insurance bill comes due in September. I know the money will be there when I need it because I’ve already assigned the dollars to pay for those bills in advance.

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  1. Dennis Schmidt on December 13, 2015 at 10:21 pm

    Instead of a spreadsheet, you should look at YNAB. Go to youneedabudget.com, the software is set up to do exactly what you’re talking about. This my 2nd or 3rd year where I won’t be carrying Christmas debt into January, because I don’t have any.

    • Echo on December 14, 2015 at 3:18 pm

      Hi Dennis, thanks for the suggestion. I’ve looked into YNAB and maybe I’ll take the free trial for a test-drive.

  2. Big Cajun Man (AW) on December 14, 2015 at 9:05 am

    In the words of a US Politician you have Known Unknowns, and Unknown Unknowns, so you have to plan for the Known Unknowns and risk manage the Unknown Unknowns.

    Or as they might say in Die Hard, “Poop happens” I paraphrase

  3. Susan J on December 14, 2015 at 9:44 am

    We have been doing this for years and carry no credit card debt. Budgeting for Christmas makes so much sense but we don’t go over board either in the gift giving dept. We feel that we all have the means to buy whatever we want. Choosing rather to give to those who can’t repay us. The expense comes in eating and drinking and entertaining. I love this years Interac commercials on TV as it alludes to this about the debt in Christmas. Don’t go there! That should be everyone’s NY resolution.

  4. Kathy Your Net Worth Manager on December 14, 2015 at 5:53 pm

    The expenses that get me are things like a $6000 gear box for a tractor that we cannot do without or we won’t be able to snow blow our way out to go to work.
    I hate having an ” emergency” fund sitting making 0.5% so I use a Manulife One and put money in a sub account so its bringing down my riding arena loan by the size of my emergency / tractor/ something always breaks round here fund. Its like getting my mortgage rate on my savings.
    I know some people hate the ” all in ones” but they are great if you are careful how you use them

  5. DGForce on December 20, 2015 at 11:11 am

    Many workplaces offer Canada Savings Bonds thru payroll deduction. I take advantage of that specifically for Christmas. The interest is pitiful, but that’s irrelevant. $75 x 26 pay periods is ~$2,000 at the end of the year, at just the right time!
    You could do the same thing with a separate bank account, but with CSB’s, your employer does the deduction and you never see it!

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