Big Expenses Got You Down? Make a Plan
LAST UPDATED: May 25, 2023 | By Conrad Golly
Are you tired of feeling like your budget is always on the brink of collapse? It can be stressful to face unexpected big expenses, whether it’s a car breakdown or a sudden medical bill. But don’t worry, you’re not alone!
With a bit of foresight and some smart financial planning, you can take back control of your finances and be prepared for whatever life throws your way. One of the best ways to get ahead of big expenses is to start saving early. By putting aside a small amount of money each month, you can build up a reserve that you can tap into when you need it most.
This is especially useful for expenses that you know are coming, like annual insurance premiums, mortgage payment or property taxes. By budgeting for these costs in advance, you can avoid the stress of scrambling to come up with the money at the last minute.
Planning for Big Expenses
When it comes to big expenses, planning ahead is key to avoid financial stress. Whether it’s a down payment on a house, a new car, or a big trip, identifying, saving, and budgeting for these expenses can make all the difference.
Identifying Big Expenses
The first step in planning for big expenses is identifying what those expenses are. Big expenses can include big purchases like a new car or a down payment on a house, as well as large expenses like a wedding or a big trip. Once you have identified what your big expenses are, you can start to plan for them.
Saving for Big Expenses
Saving for big expenses can be a challenge, but it’s important to start early and be consistent. One way to save for big expenses is to set up a separate savings account specifically for that purpose. You can also automate your savings by setting up automatic transfers of funds from your checking account to your savings account each month.
Another way to save for big expenses is to cut back on common expenses. For example, you can cut back on eating out or cancel subscriptions you don’t use. You can also sell items you no longer need or use to add to your savings.
Budgeting for Big Expenses
Budgeting for big expenses involves setting aside money each month specifically for that large expense. You can use a budgeting tool like EveryDollar to create a budget and track your progress. When creating your budget, be sure to include all the costs associated with the big expense, including any interest or fees.
I have a handy dandy 50/20/30 budget Calculator set up if you need help.
When it comes to big ticket items like a new car or a down payment on a house, it’s important to do your research and shop around for the best deals. Look for sales or promotions, and negotiate with dealerships or lenders to get the best price possible.
Creating a Monthly Budget
So, you’ve got some big expenses coming up and you’re wondering how to budget for them? Well, the first step is to create a monthly budget. It might sound boring, but trust us, it’s the foundation of any good financial plan.
To start, you need to figure out your monthly income. This includes your salary, any side hustles, and any other sources of income you might have. Once you know how much money you’re bringing in each month, you can start to allocate it to your expenses.
Your expenses can be divided into two categories: a fixed expense and variable. Fixed expenses are the ones that stay the same each month, like rent or car payments. Variable expenses, on the other hand, are the ones that can change from month to month, like groceries or entertainment.
To create your budget, start by listing out the cost of all of your fixed expenses. Then, subtract that total from your monthly income. The remaining amount is what you have to work with for your variable expenses.
Next, list out all of your variable expenses. This includes things like groceries, gas, entertainment, and any other expenses that can change from month to month. Be honest with yourself about how much you’re spending in each category. It’s better to overestimate than underestimate.
Once you’ve listed out all of your expenses, add up the total. If you’re spending more than you’re bringing in, you need to make some adjustments. Look for areas where you can cut back, like eating out less or canceling a subscription service.
Building an Emergency Fund
Let’s face it, life is unpredictable. Unexpected expenses can pop up at any time, whether it’s a car repair, a medical bill, or a job loss. That’s why it’s important to have an emergency fund in place.
An emergency fund is a stash of cash that you set aside specifically for unexpected expenses. The goal is to have enough money saved to cover at least three to six months’ worth of living expenses. This may seem like a daunting task, but don’t worry, you can do it!
To start building your emergency fund, take a look at your budget and figure out how much you can realistically save each month. Even if it’s just a small amount, every little bit helps. You can start by putting your savings in a high-yield savings account, which will earn you a bit of interest while keeping your money easily accessible.
If you’re not sure how much you need to save now, consider the types of unexpected expenses that could come up. For example, if you have a chronic health condition, you may want to save more than someone who is generally healthy.
In addition to saving money, it’s also important to be prepared for unexpected health care expenses. Make sure you have adequate health insurance coverage and consider setting up a health savings account (HSA) if you’re eligible. An HSA allows you to save pre-tax dollars for medical expenses and can be a great way to build up your emergency fund specifically for health care costs.
Other Tips for Managing Expenses
Managing big expenses is just one part of the equation. To truly take control of your finances, you need to take a holistic approach to managing your monthly expenses too. Here are some other tips to help you stay on top of your spending:
- Track Your Expenses
One of the most important things you can do to manage your expenses is to track them. This will help you determine where your money is going each month and where you can cut back. You can use a simple spreadsheet or an app like Mint to track your expenses.
- Look for Better Deals
Another way to manage your expenses is to look for better deals. This could mean negotiating with your service providers, shopping around for better prices, or switching to a cheaper alternative. For example, you could switch to a cheaper cell phone plan or bundle your cable and internet services to save money.
- Pay Bills on Time
Late payment fees can add up quickly and hurt your credit score. To avoid this, make sure you pay your bills on time each month. You can set up automatic payments or use a reminder app to help you stay on top of your payments.
- Determine Your Fixed Expenses
Fixed expenses like rent, mortgage payments, and utilities are expenses that you can’t easily change. To manage these expenses, you need to determine exactly how much you’re paying for certain expenses each month and budget accordingly.
- Don’t Fall for Impulse Buys
Impulse buys can quickly add up and hurt your budget. To avoid this, try to limit your spending on non-essential items. You can also use the 24-hour rule: wait 24 hours before making a purchase to determine if it’s really something you need.
The Verdict: Plan For Big Expenses
Congratulations! You made it to the end of this article on how to plan ahead for big expenses. You are now equipped with the knowledge to take control of your finances and tackle those big ticket items like a pro.
Remember, the key to planning for big expenses is to set financial goals and create a savings plan that works for you. This could include opening a separate savings account or creating a fund within your existing account for future expenses. The key is to have a designated place to set aside money for those big expenses.
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