While fixed costs are easy to budget, life’s other expenses can present special challenges. Things such as groceries, clothes, and gas can have variable expenses from month to month and unexpected expenses, should be, well, expected. Fortunately, you can still plan ahead for these types of costs and work them into your infiBudget.
First, in order to make accurate estimates, you’re going to need some data to work with. This is where using financial tracking apps can really come in handy. Apps such as Mint or Personal Capital can compile large amounts of spending data by tagging expenses by category. If you don’t want to use a tracking app, you can still do this yourself using your bank or credit card statements, receipts, etc. You’ll then want to make a spreadsheet itemizing expenses by category for as long a time period as you can. More data will yield higher accuracy. Since the infiBudget is essentially a yearly budget that you simply tweak along the way, having a year’s worth of data is ideal. But, if that isn’t feasible, having at least 3 months and extrapolating out those expenses to a full year should be sufficient to at least get an initial estimate of your expenses. Once you’ve done that, you can begin to interpret that data.
To help you do that, I’ve made a Slush Fund Planner. At first glance, it’s very similar to the fixed expenses sheet on the infiBudget. There’s a good reason for this.
In any form of budgeting, you need to be able to expect or predict your expenses in order to make rational decisions. Traditional budgeting does this by having you account for all your expenses each and every month. This works well for consistent monthly expenses but we all know that some months carry more expenses than others.
People tend to travel more in the summer and spend more on things during months with holidays, birthdays, etc. If we’re only budgeting month to month, either your savings will suffer or you may not have enough money on hand to cover the additional expenses. To alleviate this, many traditional budgets call for setting up separate accounts specifically for these short term goals. While there’s nothing wrong with that and you can automate your money towards those accounts, it’s not necessary. By continuously budgeting for these expenses, you don’t need to set up a separate account and given the time frames typically involved, you’re not missing out on much extra income from having more savings accounts.
The other item in the spreadsheet is a buffer percentage. While not absolutely necessary, buffers are very important for your sanity when managing your money. Things can change suddenly. While you’d like to think that budgeting for everything is possible, life will smack you in the face if you adhere to that philosophy. Sometimes, stuff just happens. Think of your buffer as your “kind-of-an-emergency” fund. While your emergency fund should be reserved just for emergencies, the buffer can deal with the little issues that can come up.
Determining what your buffer will be is going to be up to you. At a bare minimum, I’d recommend an extra $1,000 to your yearly expenses. Why $1,000? Aside from being recommended elsewhere, I’ve rarely come across an unexpected expense that exceeds that. That $1,000 could easily translate to a car repair, plane ticket, or ER bill. Beyond $1,000, a good even number to reach for would be a 10% buffer. As your variable expenses increase, chances are that you’re living a lifestyle that can have larger expenses. After all, it usually costs more to fix a $30,000 car than it does a $10,000 car.
Now that you have a grasp on your variable expenses, you can go on to the next steps in setting up your infiBudget!