How To Budget for Non-Recurring Expenses

Everyone has to deal with non-monthly expenses from time to time. And while budgeting for such regular expenses like rent and a mortgage is relatively simple, variable expenses can easily make all your budgeting efforts go down the drain.

Utility bills, groceries, and gas are typically the variable expenses that we are used to including in our budget as they don’t come as much of a surprise. However, irregular expenses and impulse purchases can become a financial challenge for the majority of people.

Home renovations, vacations, various emergencies, and holiday gifts – all these things can make you dive into your savings account (that is if you have one, of course).

The good news is that with the right planning, even irregular bills will no longer be an issue for you. Today, you’ll find out how to budget for non-recurring expenses, so that you never get caught off-guard ever again.

Key Takeaways

• Non-recurring expenses are costs that occur infrequently or only once, like major home repairs, medical bills, car purchases, legal fees, etc. They differ from regular monthly expenses like rent or utilities.
• To budget for non-recurring expenses, make a list of these irregular costs from reviewing past statements, estimate the total annual amount, divide by 12 to get a monthly amount to save, and set up a dedicated savings account to automatically transfer that amount each month.

What Are Non-Recurring Expenses?

Non-recurring expenses, also known as one-time, non-monthly, or irregular expenses, are costs that occur infrequently or only once within a payment period. 

These expenses are not part of your regular, ongoing expenses and are not typically budgeted for on a monthly or annual basis. Some examples of non-recurring expenses include:

• Major repairs or home renovations
• Birthdays or anniversaries
• Holiday gifts
• Medical bills for an unexpected illness or injury (this includes vet bills as well)
• Costs associated with a wedding, graduation, or other special event
• Purchasing a new car or major appliance
• Legal fees or court costs
• Moving expenses
• Emergency expenses, such as a car breakdown or home repair

Non-recurring expenses differ from recurring expenses, which are predictable and happen regularly, such as rent or mortgage payments, utility bills, and groceries. Because non-recurring expenses are irregular and often unexpected, they can be challenging to plan for and can put a strain on your budget if you don't have an emergency fund or savings set aside.

It's essential to identify potential non-recurring expenses and factor them into your overall financial planning. You may want to set aside a portion of your income each month or year to cover these types of expenses when they arise. Proper budgeting and financial management can help you avoid going into debt or draining your savings when faced with non-recurring expenses.

Who Experiences Non-Monthly Expenses?

The truth is that everyone has to deal with such expenses. You most certainly had at least one expense that sneaked up on you this year. Simply know that you can budget even for such “surprise” bills. 

To get a better idea of what budget busters you might have in your day-to-day life, have a look at your bank account or credit card statement. Take note of the expenses that you did not budget for. The chances are high that you saw the majority of those coming, you just didn’t put in enough effort to prepare your wallet for them.

Learning to budget for non-monthly expenses will help you avoid financial stress. You will also start to feel more in control of your own finances, and this will ultimately help you achieve your money-related goals faster.

How To Budget for Irregular Expenses

The first step to successful budgeting is figuring out where your money is going.

You might already have enough set aside to pay for rent or your mortgage every month (because, let’s be honest, such expenses are difficult to forget about), but an important car repair or a vet bill might set you back a few hundred bucks without you being prepared for it.  

Once you’ve checked the statements, make a list of all the irregular expenses that you had to take care of over the months. From now on, you might decide to add a separate section to your monthly budget that would help you cover the "miscellaneous" bills.

If you want to be prepared for irregular expenses, you would also have to consult your calendar quite often. Do you have any planned trips or events that you need to set aside some cash for?

If you have to prepare your wallet for a birthday gift, it might be enough to budget for the expense only for one month. However, such things as vacations and parties that you need to host can be more demanding when it comes to finances, so you might want to create a separate reserve fund at least a few months in advance.

Non-Monthly Expense Examples

Looking at your credit card statement, but have no idea where to start? Here are the most popular categories that typically qualify as ‘irregular expenses’:

Home

• Property taxes can be paid annually, semi-annually, or quarterly. How much you would have to pay depends on a few factors. If the assessed value of your house is $400,000, for example, and the local tax rate is 2%, you would owe $8,000 in property taxes per year.
• You should expect to spend about a percent of your home’s value on maintenance and repairs every year. This can include such often overlooked expenses as lawn care, checking the HVAC system, and so on.
• Every once in a while, you would want to change things up in your place. Though purchasing a few new cups or a rug is not necessarily something you can’t afford, all these amounts can easily add up throughout the year.

Car

• Car maintenance costs about $800-$1,350 per year. You really should not skip routine check-ups, as the number can easily double or triple if your vehicle breaks down.
• Remember that vehicle registration has to be renewed every year or a few years, depending on the state you live in.

Insurance

• An insurance payment is generally either a monthly or annual payment. Many individuals might forget to budget for the latter. If you have multiple insurances (life, health, auto, etc.), you would have to set aside enough cash for all of them.

Health

• If your insurance does not cover yearly health check-ups, you would have to pay at least $300 for such a visit. Of course, the necessary medical procedures will vary from one individual to another. But, on average, an adult can expect to spend about $13,493 on healthcare per year. This can include anything from hospital stays to dental work and glasses.

Education

• When thinking about education-related costs, we often keep only the cost of tuition in mind, but, unfortunately, there are a lot more expenses that you would have to cover.
• Families often spend around $890 on back-to-school supplies per kid (and the average price of books and supplies for college students is even higher). Accommodation, travel, and food costs also should not be neglected.

Leisure

• This is the category in which you might want to include the gifts that you’re planning on giving your loved ones for their birthdays and other celebrations.
• Holiday expenses, in their turn, can include, aside from gifts, food, décor, travel expenses, and donations. Many financial experts recommend shopping for holiday stuff a year in advance. That is because you will get the best deal for, for example, Christmas décor right after the gifting season comes to an end. 
• 20-30% of your monthly budget might already be allocated toward different forms of entertainment. However, as such expenses are quite irregular, they also got included in the list. 

Pets

• If you have a pet, there are quite a few additional things that you would have to budget for, starting from vaccines and ending with grooming costs. Most dog owners spend about $1,200 annually.
• It might also be worth going for pet insurance to avoid having to spend thousands on medical bills out of your pocket in case of an emergency.

Speaking of emergencies, though you can predict such things as routine checkups or a trip to your relatives for Christmas, emergency expenses always seem to appear out of nowhere. And, unfortunately, they are usually the bills that require the largest amounts of money to take care of.

Whether you have to deal with urgent surgery or pay for plane tickets and a hotel stay to be able to attend a funeral, you might want to consider going for a loan. 

How To Budget for Non-Monthly Expenses

Here are some practical tips on how to actually budget for these expenses:

Step 1: Make a List

To make a list of all your irregular expenses, you would have to go through your bank statements. Thankfully, getting a hold of those is extremely easy. All you would have to do is go to your online banking page and download the statements from the last few months. If you want to go the extra mile, download a year-worth of statements, this will help make sure that you get the full picture.

Look for the expenses that you haven’t budgeted for and the ones that pop up only once every few months. Make sure to categorize the expenses, when making your list. 

Step 2: Estimate How Much You Spend on These Annual Expenses

There can be quite a few bills that haven’t made it to your bank statement. So, the best thing that you can do is estimate how much you spend on each category per year.

Remember that everyone’s expenses are highly individual, but it’s always nice to have a number that you can use as a benchmark:

Things like gas and groceries can also be classified as ‘irregular expenses’ as they vary from one month to the other, but you’re less likely to forget about those, that’s why these expenses were left out of the list.

Step 3: Add Everything Up

Whether you decide to use your bank statements or our table to calculate your annual expenses, the next step would be to add all of them up.

Don’t let the total scare you, even if you have just realized that your non-monthly expenses are eating up 5-10% of your income.

Step 4: Divide by 12 To Smooth These Expenses Out into Your Monthly Budget

Divide the total by 12 to get a monthly average that you might want to start setting aside from now on.

Step 5: Create a Dedicated Savings Account for These Expenses

You can choose to create a second savings account to save this monthly average or take advantage of a sub-account. The latter allows you to split your checking or savings account into different "pots" of money. 

If you can go a step further and automate the savings, you should do that. The fact that you won’t get to manually send a part of your income into a separate account will make it easier to achieve your goal from a psychological perspective.

Step 6: Be OK with Your Monthly Spending Being Different Each Month

If you’re setting aside $1,000 per month on your irregular expenses, that does not mean that you will necessarily spend every dollar from that ‘pot’ on non-recurring expenses that very month.

But don’t be tempted to use the money for something else, if you notice that a relatively large sum always gets left in this savings account. At one point throughout the year, you will be able to take advantage of the ‘pot’. 

So, just keep on saving, and you’ll never get surprised by an irregular expense ever again. 

Note: The content provided in this article is for informational purposes only. Contact your financial advisor regarding your specific financial situation.