Putting together your budget by the month makes sense most of the time—you pay your rent or mortgage, utilities, student loans, and other bills all monthly, right? The problem is certain expenses—the end-of-summer vacation you’re planning, your best friend’s destination wedding, holiday shopping—crop up only occasionally, maybe just once a year.

So, how do you factor them in to your monthly spending plan? Some suggestions and advice are provided in this article to help you take care of these big expenses.

• How do I Budget for Large Purchases?
• How much Should I Budget for Spending Money?
• How do you Budget for Irregular Expenses?
• How much of your Income Should be Spent on Living Expenses?
• What is an Example of an Annual Expense?
• How do you Budget for one Time Expenses?
• How Much Should you Budget for Hobbies?

How do I Budget for Large Purchases?

How can you include major expenses into your budget without going deep into credit card debt? We have a few ideas.

1. Plan ahead for the expenses

If you know you’re going to need to buy a bridesmaid dress, a plane ticket to the wedding, and a gift for the newlyweds in April, estimate how much you’ll need to save before then. Divide that by the number of paychecks you’ll receive prior to that date, and you’ll know exactly how much of each check you need to stash to cover the cost.

Read Also: The Best Budgeting Tools to use That are Free

Don’t forget the expenses you encounter year after year, either—car insurance is a common one. If you pay your premium every six months, and it costs you $600 at a time, you should subtract $100 from your budget each month (or set it aside in a separate savings account) until it’s time to pay.

2. Find the Best Place to Save

Once you’ve determined how much you need to accumulate throughout the year to cover each of your big-ticket items, you have a couple of different options. If you tend to be good at budgeting and tracking, it’s fine to amass one general savings fund, transferring the amount you need to save every month into that account.

But it might be easier to set up separate accounts for each large expense—a vacation fund, a new computer fund, a holiday fund—so you can easily track where you are with your goals.

Your bank or credit union might even offer specialized savings accounts like a “Christmas Club” that keep you honest: They let you put money in all year, but penalize you if you withdraw before a certain date.

3. Don’t Forget Your Emergency Account

Now, in addition to saving for your planned big expenditures, you should also be putting money into a separate account for emergencies. This “Emergency Fund” will keep you from needing to drain your fun savings accounts for the kind of unexpected expenses most of us dread.

Experts recommend maintaining a balance of three to six months living expenses in case of unforeseen events—if you lose your job, become ill, or need to repair a necessity, like your car or your roof.

And, tempting as it may be, don’t tap into (or even borrow from) your emergency savings for your vacation or other costs you should be budgeting for. If you make a habit of it, you’ll find yourself in financial trouble when a real emergency arises.

4. Don’t Put it on Your Credit Card

Like dipping into your emergency fund, your credit card can be another threat to your annual financial plan. It’s fine to put a big purchase on a card to earn the airline miles, cash back, or rewards points that come with it, but make sure you’ve budgeted for the amount you’re charging and that you pay it off immediately.

If you’re paying interest every month, that amazing deal on an all-inclusive vacation could cost you far, far more than you bargained for.

By planning ahead for your larger and less common expenses, you can feel secure knowing you’ve set aside the funds to cover them.

How much Should I Budget for Spending Money?

A lot of people wonder how much of their income they should spend on their home, vehicle, groceries, clothes, etc. Below are some guidelines to give you a general idea and provide you with a starting point for your budget. Based on your income, family circumstances, and the part of the country you live in, your allocations may be very different.

To work with these budgeting guidelines, begin by developing your budget with the money you have available after government deductions from your pay cheque, but before voluntary deductions such as RRSPs, pensions, or other savings.

If you have expenses such as high debt payments, childcare, school expenses, or giving, you will need to reduce your spending in other areas to allow for these higher expenses.

Breakdown of Cost of Living Budgeting Categories

• Housing: 35%
  mortgage / taxes / strata / rent/ insurance / hydro
• Utilities: 5%
  phone / cell phone / gas / cable / internet
• Food: 10 – 20%
  groceries / personal care / baby needs
• Transportation: 15 – 20%
  bus / taxi / fuel / insurance / maintenance / parking
• Clothing: 3 – 5%
  for all members of the family
• Medical: 3%
  health care premiums / specialists / over-the-counter
• Personal & Discretionary: 5 – 10%
  entertainment / recreation / education / tobacco/alcohol / eating out / gaming / hair cuts / hobbies
• Savings: 5 – 10%
  Plan to save money for expenses that don’t occur every month, as well as for your future. Then you’ll have a little extra available when you need it.
• Debt Payments: 5 – 15%
  Many people find that their budget is quite tight when their monthly debt payments are close to 23% of their net income.

How to View These Budgeting Guidelines

These guidelines have been created for someone who really needs to put together a tight budget. If finances aren’t strained in your household, you can decide to be more relaxed and go beyond the guidelines in areas as long as you’re doing two things: 1) you’re not spending more than you earn, and 2) you’re allocating some money towards savings (savings are absolutely necessary for life’s many unexpected expenses. Don’t rely on credit for these unexpected expenses. Rely on money you’ve saved).

The category in these guidelines that people will most commonly exceed is the Personal & Discretionary expense category. The guidelines suggest you spend 5 – 10% of your income in this category.

However, if you happen to have young children in daycare, have high education costs, take nice vacations, tithe, or have hobbies or recreational interests that aren’t cheap, you’ll quickly exceed the suggested maximum for this category.

Please know there is nothing wrong with exceeding this limit as long as your budget balances (your expenses don’t exceed your income).

You may also notice that if you spend the maximum amount in every category, you’ll exceed 100% of your income. These guidelines are only recommended ranges. Life is all about choices, but you can’t choose the maximum amount in all spending categories.

Spending more in one category may mean that you’ll have to cut back in another category to make your budget balance.

If you live in Canada’s far north or in a city where homes are very expensive, you may have to cut back more than an average Canadian would in certain categories in order to afford your higher living costs. In these cases, you will most likely exceed the suggested maximum guidelines for Food or Housing.

How do you Budget for Irregular Expenses?

If you stick to your budget each month, but still seem to run out of money before the month is over, irregular expenses could be to blame. Irregular expenses are those bills that you only pay once a quarter, once a year or on an as-needed basis.

Because you seldom think about them it makes them easy to forget about until they’re due (and you have to scramble to come up with the cash to pay them).

Fortunately, taking the surprise out of irregular expenses is fairly simple. You just have to identify your irregular expenses, total their cost, and divide that total by 12 to turn them into a single monthly bill that you can include in your budget.

Ready to give your budget the update that it needs? Let’s take a closer look at how to incorporate those irregular expenses into your monthly budget.

Identify Your Irregular Expenses

Irregular expenses include any bill that is infrequent, but easy to predict. That means insurance bills that you pay annually or twice-annually. It also means things like vet bills, magazine subscriptions, haircuts and vehicle registrations.

Take some time to think about all of your expenses over the course of a year, and make a list of every irregular expense that you can think of.

Figure out How Much It’ll Cost

Now that you have your list assign a cost to each item. In some cases (as with insurance), this will be as simple as looking up the premium. In other cases (as with home maintenance and gift spending), you’ll have to estimate a cost or set a budget for yourself.

Not sure what cost to assign to something? Look over last year’s bank records to determine how much you spent. Then, consider adding 10% to that total as a buffer.

Total It

Now, grab a calculator; add up the cost of all of your irregular expenses (be sure to double check your math), and divide that number by 12. The resulting figure is how much you’ll need to set aside each month to cover all of your irregular bills for a year.

Include that expense as a line item in your monthly budget, and treat it just like any other bill that you have to pay. You might even set a due date to remind yourself to pay it.

Where to Put the Money

To ensure that the money is there when you need it, set up separate savings account for your irregular expenses. Then, move the money over to that account each month.

If you think you’ll be tempted to dip into the account for other things, consider opening an account at another bank, so it’ll be harder to get at. Online banks work well for this, as do local banks with limited banking hours and inconvenient branch locations.​

Pay Your Bills

As your irregular bills come due, simply pay them from your new account, and enjoy having one less source of stress in your life.

How much of your Income Should be Spent on Living Expenses?

Living expenses are expenditures necessary for basic daily living and maintaining good health. They include the main categories of housing, food, clothing, healthcare, and transportation. Understanding what’s involved in each of these areas will help you to budget for them.

Here’s a complete living expenses list:

Housing: Whether you rent or own, there are regular expenses, including some you may not be aware of.

• Mortgage payment or monthly rent
• Utilities (i.e. electricity, gas, trash removal)
• Insurance (i.e. homeowners or renters)
• Property tax
• General maintenance (i.e. lawn mowing, snow removal)

Food and grocery: Besides your daily meals, consider other living necessities.

• Food and beverages
• Personal care items (i.e. shampoo, toilet paper, bandaids)
• Cleaning supplies

Clothing: From your work clothes to pajamas, ensure you account for everyone in your family.

• Daily clothing
• Formal wear
• Undergarments
• Boots, shoes, and coats

Healthcare: Remember to include expenses for your primary doctor, dentist, and other specialists.

• Insurance premiums
• Office copays
• Pharmacy copays
• Over-the-counter items

Transportation: Depending on whether you take the bus or drive a car, add up your regular transportation costs.

• Car payment
• Car insurance
• Gas
• Public transportation tickets
• Taxi costs
• Parking fees

Miscellaneous: Some living expenses don’t fit a specific category, but still need to be in your budget.

• Cell phone bill
• Internet
• Baby or child necessities

While there are likely other recurring costs in your life, they might not be considered as a living expense. For example, recreational activities and entertainment aren’t living expenses.

That means your gym membership and Netflix subscription should be accounted for elsewhere. You’ll also want to ensure your budget includes any debt repayment, such as for a student loan.

Based on your salary and the cost of living in your city, the exact amount you spend on living expenses will vary. How much you spend on rent, for example, is dependent on location and your standard of living.

For instance, rent is higher in Los Angeles than it is in Detroit. A three-story home will be more than a one-bedroom apartment. Figuring out your grocery budget will depend on how often you eat out and if you use coupons at the store.

No matter your preferences or where you live, you can come up with a rough estimate for your living expenses. Focus on the main categories of housing, food, clothing, transportation, and healthcare. Look at each component and write down roughly how much you spend in each area.

In general, experts recommend using the 50/20/30 rule to create your budget, especially if you’re a young adult. The 50/20/30 guideline offers a basic financial strategy for your spending and saving. The rule says that you should spend 50% of your income on your living expenses, like your rent and car payment.

You should put 20% of your income in savings, whether that’s for a rainy day fund or a down payment on a house. For the remaining 30%, put it toward personal expenses like a night out with friends or a weekend getaway.

Because the 50/20/30 rule is a guideline, there is some flexibility. You can adjust the percentages based on your unique circumstances. The main idea is to limit your living expenses to roughly 50% of your income. That way, you’ll have enough leftover for your savings and fun expenditures.

What is an Example of an Annual Expense?

Every month, there are the usual bills: rent/mortgage, utilities, etc, but there are many yearly expenses that crop up for which you may be unprepared. 

For example, someone who wears contact lenses needs about $300 for a full year’s supply. Since this is not a regular bill, you may be tempted to put that $300 on a credit card and then end up paying interest until the lenses are paid off. 

Another choice may be to take money from your savings, which is not recommended. The goal should be to accumulate money in designated “Funds” throughout the year in anticipation of the needs that invariably arise.

The first step is to analyze your family’s yearly expenses (not monthly bills) to determine what funds you might need to establish. Maybe you commonly pay a co-pay at the Doctor’s office or frequently pay for a prescription. 

In that case, a Medical Fund should be created.  Some other examples of Funds for yearly expenses are auto expenses, home, vacation, gifts, clothing, seasonal utilities, holidays, and big ticket items (TV, stereo, trampoline, etc). 

You can estimate how much you need in a year by revisiting the past year’s checking account register or your credit card statements to find out how much you spent in each category.  Here is an example of some typical yearly expenses.

Medical (Dr. visits, eyeglasses, Dentist)	$1200/year
Vacation (Weekend trips, Big Getaways)	$1200/year
Auto Maintenance (Oil Changes, Repairs)	$1,000/year
Gifts (all holidays, special occasions)	$1,800/year
Clothing (All members of the family)	$1200/year
Home (New Curtains, Picture Frames)	$1200/year
Holidays (Parties, Crafts, Food)	$600/year
Oil (Winter Heating Costs)	$1200/year

The next step is to divide those yearly estimates by the number of pay periods in a year (12 if paid monthly, 24 if paid bi-monthly, 26 is paid every 2 weeks, 52 if paid once a week). This will help you discover how much you need to add to those funds every pay period.  So, if you are paid bi-monthly, it should look something like this:

Medical	$1200/year	$100/month	$50/pay period
Vacation	$1200/year	$100/month	$50/pay period
Auto Maintenance	$1000/year	$84/month	$42/pay period
Gifts (all holidays)	$1800/year	$150/month	$75/pay period
Clothing	$1200/year	$100/month	$50/pay period
Home	$1200/year	$100/month	$50/pay period
Holidays	$600/year	$50/month	$25/pay period
Seasonal Utilities	$1200/year	$100/month	$50/pay period
Total	$9,400/year	$784/month	$392/pay period

Now that you have determined how much you will likely spend on each category of your family’s common yearly expenses, you are ready to create a safe place to start putting aside that money.

How do you Budget for one Time Expenses?

Even if you’re a budgeting machine who has it all together, you may still get surprised once in awhile. Usually, you’ll be caught off guard by one-off expenses. These are items that you should technically expect, but they tend to sneak up on many of us. After all, it can be hard to remember expenses that only pop up once a year, or even less.

So how do you work these costs into your budget, and what’s the best way to deal with them? Here are five steps to help you list and plan for these one-off expenses:

1. Go back through your spending and find them

First, you need to actually identify these less-memorable items. The easiest way to do so is to go back through last year’s budget.

Why use a calendar year? Because some of these expenses are tied to a certain month or season. For instance, you may pay for an HVAC tune-up every spring, or the license and registration fees on your vehicle are due each October.

Looking through all those bank records will take time, but this is the most accurate way to find your one-off expenses. Look for things like dental cleaning fees, annual checkups for your pets, HOA and other association dues, car insurance premiums, vehicle registrations, and seasonal home maintenance.

Once you’ve written down each of last year’s items, do some digging to see if payments will remain the same or even rise for the coming year. Then, make a list of all the one-off expenses, how much they’ll cost, and when you expect to pay them.

2. Brainstorm additional costs you might add in the future

Don’t stop at simply looking through last year’s expenses, though. Think about how your circumstances may have changed recently, and then add in any potential new costs for the coming year.

For instance, maybe you just got a puppy. Do some research about how much you’ll expect to pay for that puppy’s vaccines and annual check-ups, then add those to your list. Or if you recently bought a house, there are a number of homeowners’ expenses you’ll now be responsible for, that you didn’t need to worry about as a renter. Plan for them.

3. Add up the total expense, and divide it by twelve

Once you have a list compiled — including due dates and amounts — add up the total expenses and divide by 12. This will tell you how much money you’ll need to save on a monthly basis in order to ensure you can meet your one-off expenses as they arise.

4. Save for them each month

Now, the fun part. You need to set money aside to cover these expenses. You can do this in a variety of ways.

For instance, the YNAB software allows you to work these costs into your monthly budget. If you’re great about sticking to a budget on the page, then just add this monthly amount to your budget.

If, however, you tend to spend extra money when it’s sitting in your checking account, you’ll need to take a different approach. One option is to find a bank or credit union that will let you open multiple fee-free savings accounts (they do still exist!), or use a bank that allows for simple sub-accounts (like Capital One 360 or USAA).

Each month, you’ll need to set aside extra money (1/12th of that annual sum), which will go towards your one-off expenses. Make a habit of transferring this money into your savings account at the beginning of each month, and only use it for those items that are on your list of one-off expenses.

Remember, this money is not an emergency fund. It’s set aside for specific payments you’ll encounter each year, which can generally be predicted and calculated. For unexpected expenses, you’ll need to build a separate, emergency cash stash.

Also note that if you have one of these big expenses due soon, you may need to scramble to front-load the account now. Say you start using this method in August, for instance, to cover $600 — a year’s worth of your one-off expenses. You plan to save $50 per month to cover all of these projected costs. Easy enough, right?

But in October, you have a $400 annual car insurance premium due. You’ll only have $150 in your dedicated savings account by this time. So, you’ll need to figure out how to cover the deficit from your budget in September or October.

Then, go right back to saving that $50 per month. If you stay at it for several months (and if you’ve done your math right!), you should have enough saved for any upcoming one-off expenses by the time they roll around.

5. Add the due dates to your budget or calendar

One-off expenses like these are some of the easiest to forget, since you encounter them so rarely. So it’s best to write the due dates into your budget or put them on your calendar.

Some types of budgeting software will let you assign a due date to occasional expenses like these. Mint, for example, will allow you to budget for an expense that occurs on a certain date each year. It will even go ahead and divide out the monthly amount you should save for that particular expense.

If your budgeting software makes it difficult to add these expenses, you can just list them in your planner. Whether your calendar is paper-based or electronic, adding these expenses will help ensure that you don’t miss them.

What about other expenses

We’ve just talked about unavoidable expenses, such as medical or dental checkups and must-pay bills. These are expenses that need to be part of your budget on a monthly basis, even if you only encounter them once or twice a year.

But what about other costs that aren’t mandatory? Things like Christmas gifts, replacing your furniture, or new winter coats for the kids?

You can treat some of these the same as other one-off expenses. Setting money aside for Christmas throughout the year can help ensure that you have enough cash available in November and December to make that Christmas magic happen. And that it doesn’t break the bank all at once.

Keep in mind, though, that you need to fund your must-pay expenses first. If you’re in a tight situation, it’s okay to forego putting $50 in the Christmas account in order to put $50 in the one-off expenses account. You can always shift your holiday spending, but those bills have to be paid on time!

As long as you keep your priorities straight, saving for both types of expenses throughout the year is an excellent budgeting strategy.

How Much Should you Budget for Hobbies?

Hobbies, by definition, are something we do for enjoyment. They aren’t activities that we absolutely have to do. That means that in a purely financial sense, spending any money on hobbies — especially when you have other financial concerns like paying for food and shelter — is wrong.

The reality of the situation, though, is very different. We all enjoy our hobbies (or we wouldn’t pursue them) and we need that enjoyment almost as much as we need food if we’re going to live life to the fullest.

But How Much is Too Much?

The problem creeps in when you think about how much different hobbies cost. Photography can be a lot of fun, but you can wind up buying some very expensive equipment. Stamp-collecting can require purchasing stamps that may be worth more than the paper they’re printed on.

Skydiving can cost more than $200 for a single jump. But if you enjoy your hobby, those big price tags can mean that your money is well spent: you may be getting a lot more out of spending that money than you would buying a bigger house or saving it up for a rainy day.

There’s no denying that we all need a safety cushion. We each need to have a secure financial basis and spending more than a small portion of your budget on hobbies when you’re not in a great place financially rarely makes sense.

Entirely cutting out enjoyable hobbies — especially those that are relatively inexpensive — should generally be a short-term strategy while you resolve other financial issues.

Read Also: The Best Apps you can use for Budgeting

But when your financial house is in order, the question of how much to spend on your hobbies can be much harder to answer. If you don’t actually need a certain amount of money for anything, why shouldn’t you spend it on your hobbies? At the end of the day, money isn’t for hoarding.

Building Hobbies into the Budget

Determining the exact amount you can not only afford to spend on a hobby but also comfortably accommodate is a matter for each person to figure out. After all, there are a lot of factors to consider: maybe your whole family is involved in the same hobby or maybe your hobby has something to do with your work.

But there are a couple of questions to consider:

• Are you in a comfortable financial position? If not, you don’t have to cut your hobby entirely, but it probably makes sense to keep your spending to a minimum.
• Are you saving enough to meet your goals in a timely fashion? It’s a matter of personal priorities, of course, but if spending money on your hobbies prevents you from reaching goals like paying off debt or buying a house, that could be a problem.
• Do you have a solid rainy day fund, just in case? As much as we all want to have fun, making sure we take care of the necessities first is just good sense.

If your finances are in good shape, though, and you have some disposable income in your budget, there’s no reason not to fund your hobby. You may not be able to go sky-diving every weekend, but you may be able to go on a regular basis… or enjoy your own hobbies.

Conclusion

Whether it’s saving for a wedding, a new home or even to establish and practice good saving habits, there’s no one-size fits all approach to financial planning. With the help of these small tips, however, you can help set yourself up for financial success and be confident in the financial decisions you make.