How to Deal with Irregular Expenses

This article could also have been titled, “How the Heck Are We Going to Pay for a New Alternator?!”

We all have them: surprise or irregular expenses that we can’t exactly plan for. Car repairs are a good example, of course. How could you expect that the tire was going to go flat as you are driving to work? And how in the world do you prepare financially for a new radiator?

Yes, how do you prepare for expenses that are not due every month, like life insurance, clothing, vacations, or insurance deductibles? These types of situations can oftentimes get families into financial trouble. Most people just don’t have the money set aside to handle surprises. Unexpected expenses can get even families that are budget-oriented into debt.

Mary Hunt, creator of The Cheapskate Monthly Newsletter, has devised a plan to help families become more independent with their money. She suggests setting up an additional checking account called a “freedom account.” This account is specifically for irregular expenses, or expenses that are not paid regularly each month. By using a loose-leaf notebook, you can keep track of “sub-accounts” within the checking account to cover each category of irregular expenses.

By using last year as an example, determine which irregular expenses you have and how much during the year you spent in each category. Let’s say you spent a total of $840 in automobile maintenance over the course of a year. Dividing that by 12 months, you spent an average of $70 a month on automobile maintenance. Commit to setting that amount (or a little bit more) into your freedom account each month under your own heading of “automobile maintenance.” As the months go by, this amount will grow, giving you more financial freedom and less stress in the event of an emergency.

When you do have to take money out of your freedom account, make sure to allot for it in your notebook, and calculate how much money is remaining. Your notebook should have pages for each category of irregular expenses that you plan to save for.

Another tip to being disciplined about setting money into your freedom account is to total the amount you are setting aside monthly and have it automatically transferred from your regular checking account into your freedom account. You can do this by simply filling out a form at the bank.

My husband and I currently use a similar method to prepare for irregular expenses and have noticed such a difference in the way we spend. We feel more in control of our money, and we don’t have to worry about having to put an emergency expense on a credit card.