This hack is EVERYTHINGGG.

One of the most common mistakes that I see my clients make is not budgeting for irregular expenses. Usually most people find it easy to budget for their regular weekly or monthly expenses (rent, mortgage, groceries, petrol, water, insurance, etc) but what really trips them up (aka they dip into their savings meant for another goal or use debt) are those irregular costs that seem to pop out of nowhere. Truth is, with a bit of planning they can easily be accounted for.

The easiest way to save up for these is to put money aside into a separate sinking or slush fund each time you get paid - just to be crystal clear this is different to your emergency fund.

A Sinking fund is for irregular expenses that you can expect such as rates, rego, service on your car, smaller vet bills, Christmas, gifts, etc.

An Emergency fund is for things that could happen but are more unlikely such as loosing your job, having to fly to visit a sick family member, expensive dental work (my husband had to spend $10k at the dentist one year!)

Ready for a real life example?

Here are some of the non regular costs that we have spent over the last year to give you an idea of what you may want to account for:

Servicing HRV $350

Car rego and wof $220

Repair glasses and new lenses $300

Council Rates (annual) $2600

Car maintenance and service (2 cars) $3000+

Dentist $1500+

Vet $2500+

Medication $2000+

Replacing airpods $345

Gifts, Donations & Christmas $6000

House Repairs: as a minimum we put away $500 each month towards a house repairs sinking fund for unexpected costs and add extra to this for any large expenses that we can expect (e.g. our gutters are due for replacement and we can foresee our driveway needing repairs soon so we have started saving more towards this on top of the $500 per month).

Go through your past bills

Start off by going through your transactions for the past year to see if there were any irregular expenses that you paid last year that are likely to re-occur for you.

If you really don't want to go through your bank statements, a less reliable way (but better than you doing nothing way!) is to think of all those expenses that caught you by surprise that you most likely had to dip into savings meant for another goal or debt for in the past year.

Round it up

Because I know that there are always going to be items that we have forgotten to plan for, I usually always add around 15-20% to what my 'planned' costs are. For example: if I think my irregular costs for the year will be $8600, then I will round my sinking fund goal to $10k for the year.

Spread it

Divide your annual number by 12 and you will get an approximate amount that you will need to contribute each month. Why just approximate? If you are just getting started and you have a large expense of $2000 coming up in 2 months but your money contribution is $900, you are not going to have enough by the time the expense is due.

So you will need to make sure you put enough in the beginning (e.g. you may want to put $1100 per month for 2 months) to make sure you can pay for the $2000 expense in 2 months time plus have a little extra.

Up level your sinking fund

Do you already have a sinking fund? Does working out the months above seem too complicated?

You may want to take this one step further. We personally like to aim to keep our sinking fund as close to a years worth at all times. This way, we know that all our irregular expenses are effectively ‘pre-paid’ a year in advance should one of us loose our jobs (can you tell by now that I am super conservative !?!). It might be a little over the top for most people but it helps me sleep at night (something I like a helluva lot). Here’s a real world example:

If your year of expenses is $8000, hustle to save $8000 as fast as you can. Then afterwards, you just need to be transferring $8000/12= $667 (round it to say $700) each month to your sinking fund and you will always be 1 year ahead!

Disclaimer: A friendly reminder that as always all of my posts are not financial advice and is for entertainment and educational purposes only.

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