Last week, we discussed the importance of including unusual but predictable expenses in your budget. Items on this list include things like car repairs, home improvements, large gifts, or vacations. By allocating a fixed amount each month, these big expenses don’t have to catch us off guard. For example, my wife and I set aside $60 each month for car repairs, which has been plenty for the minor repairs and maintenance that our vehicles have required.
This brings up a small wrinkle in your budget, though, since you’ve allocated money to be spent on a certain day, but since you likely won’t have a $60 car repair this month, your account will be out of balance if you don’t correct for this.
Thankfully, this feature is built right into the ThriveWealthy advance cashflow planning program. If you’ve not downloaded a copy yet, be sure to head over to the ThriveWealthy page and download the latest version. Start budgeting next month’s income in the colored boxes, along with the dates your paychecks come.
Once you’ve entered your income and expenses in the appropriate categories, notice the orange box in the upper left part of the screen. This section is called, “pending expenses” in the example tab, and is used to balance your budget with your current bank balance. This section is also where you’ll keep track of your car repair fund, and any other “funds” for big items that you’re saving for.
Keeping with our example of $60 per month for car repairs, let’s say that we’ve reached the 15th of the month, which is the date we entered the car repair fund to be spent. But, since we’ve not needed any repairs or maintenance this month, that $60 is still sitting in our account. To ensure that the budget matches the actual bank balance (ascertained by logging into your bank’s website), we need to enter the $60 as a pending expense. Next to the value of $60 that we enter in the orange box, we need to title the expense as, “car repair fund.” The spreadsheet will automatically adjust the budgeted balance, and the “difference” value in cell C25 should drop to 0.
Next month, we’ll have the same thing happen, and assuming no car repairs are needed by the 15th of that month, we’ll follow the same procedure. On the 15th, we’ll replace the $60 value in the orange box with a value of $120, and so on and so on, month after month. Anytime money is spent at the auto repair shop, simply reduce the pending amount by the total amount spent. So, if on the 18th of that second month, you spent $20 on wiper blades, simply reduce the pending amount from $120 to $100.
Following this plan will bring you such a sense of peace–bring ahead of these unusual expenses instead of getting knocked down by them. Please enter any questions or clarifications you have in the comments section, and as always, remember that we’re here to help you thrive!