Maybe it’s happened to you – you finally get into a rhythm of budgeting and saving, but then you have a big spending month. And it’s not even because of lack of self-control, but because of family obligations or seasonal spending (like birthdays or Christmas).
The dilemma: Do you stick to your budget and give your brother a crummy gift? Or do you get the nice gift and save less that month?
Assuming you want to be a good sibling, you’ll probably choose to save less. And don’t get me wrong, I’m all for family and friends (that’s why we have money, right? To facilitate life?), but if you don’t plan for those extra expenditures, you’ll probably end up spending more than you should.
Broaden Your Scope for Seasonal Spending
To account for seasonal spending fluctuations, you have to step back and look at the year as a whole.
Certain expenditures only happen once a year. Things like back-to-school supplies in September, Christmas presents in December, or an anniversary trip in June. These normally aren’t factored in to our monthly budgets, since they obviously don’t happen monthly.
But that’s the problem — if you don’t account for them, you’ll never be able to afford them. And you’ll never be able to achieve your savings goals if you keep spending more than you budget.
It’s much easier to keep track of a budget with a shorter time frame. For instance, if you have a daily budget for your lunch, it’s easy to know when you’ve gone over, because it’s a one-shot deal.
But even though a weekly or monthly budget is more complicated, it allows you to factor in more information, giving you a more complete picture of your finances. That’s why we need to go out even farther than one month, and look at the whole year.
Adjusting Your Monthly Budget With a Yearly Scope
There are two options: 1) Make a separate budget for each month of the year, or 2) make an estimate of your yearly spending, and then divide to get a monthly number.
The first option would technically work, but it could get confusing, since you would have a moving target each month. Constantly making lifestyle adjustments every month is not an easy thing to do (such as how often you eat out).
For the sake of consistency (and simplicity), I recommend the second approach. Look at the yearly picture, and then break it down into a monthly number.
Whatever that number is, you are not allowed to spend it in any other budget category. If there is leftover, it gets rolled into the next month. So with the examples in the section above (anniversary, school, Christmas), your monthly allotment would grow until June, when it would dip a bit, then grow until September and dip, then grow until December, at which point the remainder will be used up. Simple, right?
Keeping Track of Rollover Dollars
Don’t worry, tracking rollover dollars sounds more complicated than it is. You can monitor your apportioned funds in your budget spreadsheet, or in a tool like Mint.
For larger non-monthly expenditures, however, I recommend opening an additional savings account with your bank. Most banks shouldn’t charge you for opening an additional account (as long as you either meet a certain minimum balance, or link it with your checking account).
Let’s say you do this for your yearly anniversary trip. If you’ve determined you can afford to spend $1,200 each year on this trip, then that’s $100 a month. Each month, deposit $100 into your new “travel” savings account. Then you simply leave that money there until it’s time to book your trip!
You can do this with gift money, travel funds, insurance premiums, or whatever else you need to keep track of. It’s a simple way to keep from spending money that you’ve allocated for once-a-year expenditures. (Hint: This technique is also good for saving up for a house or car.)
Estimate, then Refine
Since we now have a broader scope for our budget, it might be hard to estimate spending if you only recently started keeping track of your finances. The best thing you can do is make an informed estimate, and then revise your estimate as you have more information.
For the first year of budgeting, keep good records and categorize your transactions. This will make it easy to see how much you spend each year on clothes or food, for example.
After that first year, you should have enough data to start refining your budget to factor in non-monthly expenditures. Your family might have a clump of birthdays in June and July, or maybe you want to go to a super-fancy dinner for Valentine’s Day. Whatever it is, you’ll now be able to account for it and make sure that your budget doesn’t get thrown off.
Now you’ll be ready for all of the spending fluctuations that come up each year. It feels nice knowing that you won’t be caught off guard, doesn’t it?