Building a budget is rewarding, but it isn’t always easy. By planning how you’ll spend each dollar in advance, you can increase the chance you’ll end the month with some cash left over that you can save, or spend on something fun like a trip to the movies.
For your budget to work, you need to plan for as many expenses as possible. Start with the big things, like rent and your car payment, and then work your way down the list until you planning how much you’ll spend on food, entertainment, or spending time with friends.
But there are always costs that we forget to plan for. Tiny purchases that seem like nothing at the time, but can add up to be a major part of your expenses during the year. We identified three things that people usually miss, and how you can build them into your budget effectively.
Whether you’re filling up your gas tank or running into town on errands, grabbing a tasty beverage is a great pick me up and seems inexpensive. But if you make frequent coffee trips this cash can add up quickly, even if you’re buying from the gas station and not a Starbucks.
If you spend $1.50 on coffee three times per week, that’s $18 dollars a month. It doesn’t sound like a lot, but that’s $216 a year that you’re potentially missing from your budget.
It’s not just drinks either. Candy bars, pretzels, and other odds and ends you buy that you didn’t plan for. Instead of trying to figure out how many “extras” you buy every month, budget for a certain dollar amount. Once you reach it, cut yourself off from coffee, slushies, and candy until the next month.
Another thing that is easy to forget to budget for are subscriptions. Some music subscriptions might be under $10 a month, but that’s still nearly $120 a year, and if you’re one of the millions of people who pay for video streaming, that could run you $15 a month or more.
They don’t cost a lot on their own, but since you pay for them automatically, it’s easy to lose track of just how much you’re paying for these monthly services. When you add them all up, you could be spending $50 or more on these services, which comes right out of the cash you had at the bottom of your budget that you wanted to save.
You might not buy gifts every month, but are you budgeting for them? Holidays, birthdays, and other special events only happen once a year, but they can cost a substantial amount of money. According to the American Research Group, the average family spent $882 on gifts and supplies during the 2015 holiday season. That’s a lot of unexpected costs. So, it should come as no surprise that many people put these large seasonal purchases on their credit cards. This might make buying gifts easier to manage in the short term, but it often means paying a lot of extra money in the form of interest.
Before you charge the holidays to your credit card, why not add them to your monthly budget? You’re making monthly payments on them either way, so why not just cut out the interest? Review your statements from last year to figure out what you spend on gifts, and then divide that number to fit it into your monthly budget. Remember to account for birthdays, anniversaries, and other events that pop up as well.
How to Find These Hidden Expenses
Despite careful planning, unexpected charges are almost certain to happen. It’s unlikely that you’ll ever get the number on your budget to match your expenses exactly month after month, but don’t get discouraged. You should try to plan for a little bit of flexibility, but it’s also important to have as many things planned for as possible, so you get the clearest picture of what’s happening with your cash.
One way to do this is to track your spending for a few months. Keep a running tally of where every dollar goes and then put these costs into broader buckets like “coffee money”, “Subscriptions,” or “parking fees.” Then, you can average these costs out to put them into your budget.
Doing this by hand isn’t easy, but thankfully you don’t have to. Websites like Mint offer a free tool to help you track your spending. They link to your bank, credit cards, and other accounts and list all your expenses in one area. If you have a smartphone, you can download apps that will help you track this when you’re on the go.
Planning for the unexpected is just one piece of building towards your goal of financial freedom, but it’s an important one.
This blog post is intended for informational purposes only. J.G. Wentworth does not provide financial, legal, or tax advice. Please contact an appropriate advisor for such services.
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