Frugal NationFrugal Nation

Do 'one-time' expenses bust your budget?

Use this simple tactic to conquer those 'special occasion or 'just this once, pleeease?' costs.

By Donna_Freedman Aug 7, 2012 11:11AM
Image: Home Budget (© Christine Balderas/Photodisc/Getty Images)A new study from New York University's Stern School of Business indicates that consumers routinely underestimate how they'll need for "exceptional" expenses -- even though some, like anniversaries or replacement vehicles, could be anticipated.

What's interesting is that consumers were willing to pay more for an exceptional expense all by itself. But they'd shell out considerably less if faced with, say, an anniversary celebration around the same time as several other exceptional expenses.

 

Why can't we be this sensible all the time?


Good question. "Though every month contains a few (such expenses), none is ever budgeted for. In isolation, each expense seems exceptional . . . but in aggregate these expenses occur frequently enough that they put a large dent in an otherwise carefully monitored budget," writes researcher Adam Alter on the NYU website.


You know your anniversary is coming, that your tires are balding and that your kid is old enough for the junior prom. Don't let these expenses overwhelm you. Take control by using the Frugal Cool version of Mary Hunt's "Freedom Account."

 

Running the numbers

Start by making a list of all exceptional expenses you're aware of for the next year, from that eroded filling your dentist just pointed out to your best friend's upcoming wedding.


Figure out how much these things will cost. That filling is easy: You just use the amount of your insurance or discount dental plan co-pay. For things like "wedding gifts" or "contributions to daughter's prom," write down how much you can actually afford based on your current income and expenses. (Post continues after video.)

Add these numbers and divide the total by 12. Set aside that amount each month, or as much of it as you can. (Hint: Create a sub-account for this money. It might make you less likely to dip into these funds for unrelated expenses.)

Here's the FC stamp: Sign that document, the one with the "here's what we can safely afford" information. If you have a partner, get him or her to sign, too. Think of it as a contract for financial stability.


A workable budget

As each expense looms, pull out that list and adhere to it strictly. You signed it, remember?


Don't second-guess whether your buddy will think you're cheap if you spend "only" $50 on a gift. Don't cave to your daughter's pleas for an additional hundred toward the dress she thinks will change her life.


Every time you give in to "It's just this once," you undermine your financial security. Maybe you will be able to catch up in a few months -- but you should also think of those dollars in term of opportunity cost and of the anxiety you feel over books that won't balance.

No one is saying you can't have a lovely anniversary dinner, give gifts or treat your family to nice things. That's the whole point of the budget I described above: You base it on what you can actually afford to spend, versus going into unnecessary debt.


That $500 prom dress will be worn for one night. Your financial security is a much longer-term proposition.


More on MSN Money:

2Comments
Aug 7, 2012 12:59PM
avatar
Keeping a budget helps me save about $200 more per month on an average income.  I list my desired one-time costs on my budget summary page to motivate me to keep spending down.

I keep a budget Excel workbook (a freebie that's the first one listed here: christianpf.com/10-free-household-budget-spreadsheets/) and on the summary page, I separately added "wish list" sections for major vacations and projects that aren't subtracted as an expense, like: "Shed: $600, Screenhouse: $2000, Raised-Bed Garden: $750 and Alaska Cruise $2500, Macchu Piccu $4500, etc.

Those things will happen after I've SAVED for them: the only exception is if there is a tremendous sale price I can borrow from dedicated-savings or charge and then pay off within several months (like when I went on a spectacular two-week tour of China from Baltimore for $2150 -all costs [flights/cruise/meals/tours] included- in 2001. The round-trip Northwest airfare represented $576 of the price!).  They're listed on my summary page to motivate me to cut my hobby, restaurant, entertainment, etc. expenses a little so I can save for them faster.

Note: if you use that free "Personal Budgeting Spreadsheet", you have to select "Tools", "Protection", "Unprotect Sheet" before you can make changes.  You don't need to be an expert to add things to the cells, but always backup your file first.

Aug 7, 2012 2:16PM
avatar

Thanks for the post. This is really what budgeting is about. It gives you the freedom to spend the money set aside and not have to worry where it is going to come from.  I also love your point about opportunity cost, it's a thing we too often don't think about.

Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

WHAT IS FRUGAL NATION?

Donna Freedman's Frugal Nation blog is for readers who want to live cheaply -- whether due to necessity or a lifestyle choice. It explores living sustainably and making life more meaningful at the same time.

ABOUT DONNA FREEDMAN

Donna Freedman

Donna Freedman, a writer based in Anchorage, Alaska, writes the Frugal Nation blog for MSN Money. She won regional and national prizes during an 18-year newspaper career and earned a college degree in midlife without taking out student loans. Donna also writes about the frugal life for her own site, Surviving and Thriving.

VIDEO ON MSN MONEY

TOOLS

More

SMART SPENDING

Can you trust Carfax?

If you're thinking about buying a car and the Carfax report comes back clean, you're good to go, right? Um, maybe not. Here are four other ways you can avoid buying a clunker.

MSN MONEY'S