A couple of months in using GB and I’m still crafting my budget and adjusting my envelopes.
What’s the best way to budget for irregular outgoings? I have two specific examples:
Pharmacy spending: last year I spent on average €30 a month on medicines. But the bills were irregular as they only happened, obviously, in the months I was ill.
Bank transaction costs: I occasionally transfer money abroad to family which incurs bank costs. Again irregular spends and I can’t predict when they will happen.
For my medicines I’ve now done a three month goal of €90 so there’s a kind of a buffer.
This is a good place to use an annual envelope with Add instructions, and if you’re able to start off with some money in the envelope that’s even better. Say you’re able to fill €90 in your medicine envelope from the start, then add €30/month after that. You may end up with €150 at some point, only to spend it all the next month. If it gets TOO full, you could transfer a bit into a savings envelope for emergencies.
Using a Goal means you’ll eventually reach that goal, which isn’t really what you’re trying to do for irregular expenses.
Your bank expenses will be similar; we all have unplanned expenses and need a place in the budget for them, so it’s up to you whether to try to predict those fees to some extent or just pull them from your “one-off” fund as needed. (By the way, do you use Wise for transfers? Just my personal opinion but I’ve found it the most transparent and inexpensive option between $, £, € and several other European currencies)
Thank you (once again) for your advice. And I’ve checked out Wise - what a great tip, I had not heard of it before. I have three kids who are all currently living abroad so this is going to make quite the difference, thank you so much!
I do have one more question though: what do I set the amount to in such an annual envelope? You say you don’t want a goal for unpredictable expenses, and I understand that, but even an annual envelope requires you to set an amount.
With any budget, especially when it’s new, you’ll find yourself making adjustments and changes as you get a better feel for what your spending really looks like. Start with your best guess as to how much you’ll need to have, then watch it over the next several months to see if your guess was close or if the amount needs to be adjusted. You can set the envelope to 0.00 if you want to, but for budgeting it’s a good idea to have an estimated amount there.
Sometimes those large surprises will necessarily come out of Savings, like if your heater suddenly gives out unexpectedly, but for others, like new tires, planning ahead in a “one-off” envelope, even if something is months or years away, gives you a little more control.
Bottom line, set the amount to what you expect to spend (if you have a couple of years’ history that can be really helpful) but be prepared to adjust it as needed.
Hope that helps!