We’ve all been there: you make a budget, you start making purchases based on your budget, and then you get stuck with some expense that isn’t in your budget.
If it’s a small expense, you can often shuffle a few dollars around or pull money from your budget’s “miscellaneous” category (if you use YNAB, that category is helpfully named “stuff I forgot to budget for”). If it’s a larger expense, you might have to dip into your emergency fund.
At The Financial Diet, Annika Fordell explains why she started incorporating the previous month’s unexpected expenses into the next month’s budget:
In October, I shelled out $80 on over-the-counter medication. First for a UTI, and if you’ve ever had one, you know that it’s a nightmare and you don’t look for online coupons — you just want to treat it immediately. After that, I got a cold. Then I started having indigestion problems. Putting in a “pharmacy“ line item in November’s budget has so far been a good call.
This technique works because it gives you a clearer picture of where your money actually goes, and helps you prepare for those expenses in advance. If you’re trying to pay off debt or save for a big financial goal, structuring your budget to eliminate as many “unexpected” expenses as possible gives you a clearer picture of how much you can spend each month while still hitting your savings or debt repayment targets.
Yes, this means you’ll probably have to cut back on another budget line item to balance your anticipated pharmacy costs—or car repair costs, or wedding gift costs, or whatever other expenses aren’t currently in your budget. On the plus side, if you don’t end up needing over-the-counter medication that month, you could roll the cash you didn’t spend into “clothing” or “dining out” or “debt repayment.”
On the minus side, you should probably avoid spending the money you’re saving for car repairs on anything else—because when your car breaks down, you’re going to be glad you saved the money. (Setting aside a little money every month for the car repair, destination wedding, or laptop upgrade you might need to cover a year from now is called a “sinking fund,” and it is one of the best budgeting hacks ever.)
After all, most unexpected expenses aren’t really unexpected. They’re unanticipated. If you buy a car, you’re going to need to repair it at some point. If you have friends and family, they’re going to get married/have babies/have birthdays at some point. Even the best meal planners have nights when there’s nothing in the refrigerator and they decide to order a pizza. These things happen.
And when they do, add them into the budget—because these things will probably happen more than once, and you’ll want to be prepared.