Preparing in Advance for Big Expenses

Irregular expenses (those that happen all the time but usually not each month) and unplanned expenses (those that will arise, but you don't know when) don't amount to very much individually, but in the aggregate they are clearly a big ticket item that must be planned for. In the past, your budget has probably been pinched because of these unpleasant surprises – an insurance bill, vacation expenses, a car repair, for example. The best way to prepare for them is to put some money aside each month in a separate savings or checking account – like an escrow account. The following summary can be used to identify and quantify these expenses. You'll probably be shocked by how much they add up to. That's why many people who haven't set money aside to pay the darn things have trouble paying them off on time.

Special note to retirees and soon-to-be-retirees: It's difficult enough to cope with unanticipated expenses when you're employed, but it can be downright disastrous when you're retired, because you don't have as much flexibility in your spending after retirement. So it's doubly important to both anticipate and budget for both irregular and unplanned expenses.