“How to Budget for One-Time Bills Effectively”

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Planning for Irregular Expenses: A Guide by O1ne Mortgage

Some bills may not fit neatly into your regular budget. Whether it’s a bill that’s due every six months or a surprise one-time expense, being prepared can help you cover the costs without accumulating new debt. It comes down to organizing your budget and being intentional with your money. Here are five simple ways to plan for one-off expenses.

1. Make a List of Irregular Expenses

It isn’t possible to plan for every expense, but taking note of irregular bills can go a long way. These are expected costs that crop up at odd times throughout the year. That might include:

• Fees for subscription services
• Regular home and car maintenance
• Child care during school breaks
• Insurance premiums that are due once or twice a year
• Prescriptions and health insurance copays
• Annual vet visits for your pets
• Travel expenses
• Holiday spending

Start by reviewing your debit and credit card statements from the past year. Seeing the numbers can guide your budgeting—and help you cut back on wasteful spending. For example, you might feel inspired to cancel certain subscriptions or compare car insurance rates.

2. Use Sinking Funds

Once you have a better idea of your annual expenses, you can include irregular bills in your monthly budget. Sinking funds may prove useful here. This is when you take a large expense and save for it bit by bit. Let’s say you normally spend around $1,000 during the holidays. If you set aside $90 every month starting in January, you’d hit your target before December. You can use this strategy for all kinds of one-time bills. Just be sure to add your monthly savings goal to your budget.

A high-yield savings account can be a great place to store sinking funds because you’ll earn interest without giving up access to your money. As of March 2024, some annual percentage yields (APYs) are as high as 5.35%.

3. Build a Budget Buffer

Another way to prepare for one-time expenses is to leave some breathing room in your budget. The goal of budgeting is to ensure that you have enough money in your account to cover your spending. On top of that, you could leave an extra cushion in your account at all times. That might be $500 or $1,000—the amount is up to you. A strong buffer could help you cover your next one-time expense.

You can replenish your buffer as needed by setting aside money from each paycheck or using cash windfalls like tax refunds or work bonuses. Of course, this method isn’t perfect. You could encounter an expense that’s greater than your financial cushion. Holding too much cash in your checking account could also be a missed opportunity, as you’ll likely earn more with a high-yield savings account.

4. Don’t Forget About Your Emergency Fund

Using your emergency fund to cover some non-monthly bills could deplete your savings. Remember that your emergency fund is meant for financial surprises such as:

• Medical emergencies
• Job loss or underemployment
• Unexpected car or home repairs

The rule of thumb is to have three to six months’ worth of expenses on hand for emergencies, but you might increase that target if you have irregular income. As for one-time bills you’re expecting—like insurance premiums and holiday costs—your best bet is to estimate your spending and save gradually in a different account from your emergency savings.

However, if using some of your emergency fund now can help you avoid taking on additional high-interest debt, just make sure you’ve got a plan to replenish your funds as soon as possible.

5. Reduce Your Monthly Expenses

Reining in your monthly spending can free up money to put toward one-off bills and annual expenses. It can also help you reach your financial goals faster, whether that’s building your emergency fund or paying down debt. Below are some strategies for reducing your expenses:

• Canceling subscriptions and memberships
• Refinancing high-interest debt
• Negotiating lower interest rates on credit cards
• Meal planning and eating out less
• Carpooling or taking public transportation

The Bottom Line

Some expenses come up every month, but others may be due on a non-monthly basis. These one-time bills might be expected or take you by surprise. Either way, it’s possible to prepare your budget for whatever lies ahead. Creating a buffer, using sinking funds and building your savings can help you get there.

If you have to apply for a new credit card to cover a one-time expense, know that your credit score will be an important detail. A strong score can qualify you for the best rates and terms. You can check your credit score for free with Experian.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you manage your finances effectively!

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