An important part of budgeting is planning for occasional and unexpected expenses. When you need to pay for these types of costs, you’ll have money set aside if you prepare.
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When making a budget, you may be able to predict some expenses more easily than others. Monthly costs for rent or mortgage, groceries, or utilities tend to follow predictable patterns. However, you may have occasional expenses or unexpected expenses that are harder to predict.
Occasional expenses come up a few times throughout the year, but not every month. Some may recur seasonally — such as gift-giving or new school supplies.
Unexpected expenses happen to most people. This could involve a sudden health emergency, a veterinarian visit that wasn’t planned, or replacing a broken appliance.
| Occasional expenses | Unexpected expenses |
|---|---|
| Easier to predict | Harder to predict |
| Can budget seasonally | Fall outside usual budget |
| Seasonal needs | Urgent needs |
| Smaller amount needed, can use cash on hand or day-to-day savings | Need to draw on savings buffer or emergency fund |
If your income is less predictable month-to-month, and fluctuates between peaks and valleys throughout the year, check out our tips for budgeting on a fluctuating income.
Planning for occasional expenses
It’s a good idea to budget for occasional expenses each month, even if it’s a small amount. This means you’ll have the money to pay for them when they arise. Or, if you need to put them on your credit card, you’ll have some money ready to pay off your purchase and avoid paying interest on it the following month.
If you can, try to make an educated guess about how much to include in your budget for occasional expenses. You can even create a budget category marked for occasional or seasonal needs. Giving it a specific label means you’ll be mentally prepared to use it for those needs.
Calculate what you think you’ll spend on each category over the year. Even better, use the previous year as a guide — how much did you spend on things like gifts, health needs, seasonal needs, and so on? Divide that total number by 12 and put that amount in your monthly budget.
You can also look ahead at your calendar and make a customized budget for the months you know there will be unique expenses. For example, months with holidays might have a larger amount for groceries, restaurant dining, or gift-giving, and summer months may need a larger amount for travel.
If you need less money during some months, you can transfer it to a savings account where it can build interest and be waiting for you later.
Use our pay off credit cards and debt calculator to find out how long it will take to cover occasional expenses if you put them on your credit cards.
How to prepare for unexpected expenses
There’s nothing like the stress of an emergency expense you didn’t see coming. Whether it’s a small or large amount, these costs you need to deal with immediately and can’t wait until your next paycheque.
While it’s impossible to completely prepare for the unexpected, you can take a few steps that will help.
- Keep some cash on hand — in your wallet or at home. There are benefits of having some cash in your wallet at all times. Cash is accessible right away, safe to use, and can be used for anything from last-minute groceries to school field trip fees. Cash can be used even if online payment services are malfunctioning. You might even get a discount for using cash at some restaurants or retailers.
- Start a savings account with automated contributions. It’s important to have a savings account, for many reasons. Savings goals can be both long-term and short-term, and one important short-term goal is the unexpected. Even a $500 or $1,000 savings buffer might mean the difference between being able to handle an unexpected expense, and needing to take on a loan or more credit card debt.
- Build a larger emergency fund for times of bigger uncertainty. If you’re already in the savings habit and have a $1,000 buffer accumulated, keep it going until you’ve got a month’s worth of living expenses. Then you can work towards three to six months if you’re able. If or when an emergency strikes, you’ll be glad to have savings.
If you haven’t started building your emergency fund, there’s no better time than now.
Budgeting is one part of your financial plan
Financial challenges are hard to predict in advance. Some unexpected expenses can also come from widespread changes in costs due to inflation, interest rates, or market events. These kinds of surprise expenses will likely continue for the long term, rather than as a single emergency.
When this kind of budgeting challenge strikes, it’s helpful to review your financial plan more fully — your saving and investing goals, debt repayment needs, time horizon for investing, and so forth. It may be necessary to make changes to one part of your financial plan to accommodate the others.
Speaking to a financial advisor or debt management professional can also help in tough times.
Summary
Some expenses are harder to predict than others, but having a plan can help. Keep in mind:
- Occasional expenses come up throughout the year but not every month. They can be easier to predict, and you can even budget for them seasonally.
- Unexpected expenses are harder to predict and can happen any time. They fall outside usual budgeting, but money is usually needed urgently when unexpected expenses occur.
- When planning for occasional expenses, first estimate how much you spent the previous year on occasional expenses. Divide that into monthly amounts for your budget.
- You can make custom budgets for months with unique expenses like holidays.
- While it’s impossible to completely prepare for the unexpected, it’s a good idea to keep cash on hand, create a savings account with automatic contributions and build an emergency fund for times of uncertainty.
