How Do I Budget for One-Time Expenses?

Tips for staying ahead of those pesky one-time bills

How to budget for one-time expenses, whether they're recurring or not

One-time expenses can be tricky to budget for. Most of the time, they tend to sneak up on you. You can probably recall a time when a one-time expense caused you to dip into savings. Maybe it was an unexpected increase in your insurance premium or your roof needed repair.

While it might not seem like you can budget for these one-time expenses, the good news is that you can. The divide-and-conquer approach is best. Focus on three of the basic types of one-time expenses: predictable once-a-year costs, the oh-so-frustrating occasional costs that strike unexpectedly, and true emergencies.

Occasional Expenses

You can budget for occasional expenses, like your car overheating or your computer crashing, by creating special funds earmarked specifically for maintenance. Contribute a small amount every month to a special savings accounts earmarked by category.

For example: create one fund that's earmarked for "home repairs." A good rule of thumb is to contribute 1 percent of your home value into the fund each year. For example, if your home cost $200,000, contribute $2,000 a year, or $166 a month, into this fund.

Next, create a fund earmarked for "car repairs." You might choose to contribute $600 a year, or $50 a month, depending on how old your car is and how often it tends to breakdown.

Online banks like SmartyPig allow you to create multiple savings accounts that you can "nickname," or earmark, for each category.

Your goal should be to have special savings accounts that are large enough to cover these occasional repair and maintenance costs. Obviously, if a major car repair pops up while you're in the process of building the account balance, you might need to pull funds from your home repair account to cover the costs.

Annual Expenses

To budget for annual costs, like holiday gifts and property taxes, set aside a small amount each month and allocate funds to cover these predictable expenses.

Begin by looking through your records to see how much money you spent the previous year. Divide this sum by 12 and set aside that amount each month. Budgeting worksheets are useful in helping you figure out how much you'll need.

True Emergencies

A real emergency is a once-in-a-lifetime event like a job loss or a no-fault car accident that necessitates a lot of out-of-pocket medical costs. This is different from an "occasional expense" like a car repair, which happens often enough to be predictable.

Build the fund large enough to cover three to six months of your total living expenses, which will help tremendously if you lose your job. Aim for a fund that covers six to nine months of living costs if you’re self-employed or have irregular income. For freak occurrences, like a car accident, try to build a fund that covers two to four months of living expenses in case you cannot work.