Plan for occasional and unexpected expenses

When making a budgetBudget A monthly or yearly estimated plan for spending and saving. You work it out based on your income and expenses.+ read full definition, you may be able to predict some expenses more easily than others. Monthly costs for rent or mortgageMortgage A loan that you get to pay for a home or other property. Often the loan is for 20 years or more. You make a set number of payments for a set amount each year.+ read full definition, groceries, or utilities tend to follow predictable patterns. However, you may have occasional expenses or unexpected expenses that are harder to predict.

Occasional expenses come up a few times throughout the year, but not every month. Some may recur seasonally — such as gift-giving or new school supplies.

Unexpected expenses happen to most people. This could involve a sudden health emergency, a veterinarian visit that wasn’t planned, or replacing a broken appliance.

If your income is less predictable month-to-month, and fluctuates between peaks and valleys throughout the year, check out our tips for budgeting on a fluctuating income.

Planning for occasional expenses

It’s a good idea to budget for occasional expenses each month, even if it’s a small amount. This means you’ll have the money to pay for them when they arise. Or, if you need to put them on your credit card, you’ll have some money ready to pay off your purchase and avoid paying interest on it the following month.

If you can, try to make an educated guess about how much to include in your budget for occasional expenses. You can even create a budget category marked for occasional or seasonal needs. Giving it a specific label means you’ll be mentally prepared to use it for those needs.

Calculate what you think you’ll spend on each category over the year. Even better, use the previous year as a guide — how much did you spend on things like gifts, health needs, seasonal needs, and so on? Divide that total number by 12 and put that amount in your monthly budget.

You can also look ahead at your calendar and make a customized budget for the months you know there will be unique expenses. For example, months with holidays might have a larger amount for groceries, restaurant dining, or gift-giving, and summer months may need a larger amount for travel.

If you need less money during some months, you can transfer it to a savings accountSavings account A bank account intended for depositing funds. Pays interest and lets you withdraw cash at any time.+ read full definition where it can build interest and be waiting for you later.

Use our pay off credit cards and debt calculator to find out how long it will take to cover occasional expenses if you put them on your credit cards.

How to prepare for unexpected expenses

There’s nothing like the stress of an emergency expense you didn’t see coming. Whether it’s a small or large amount, these costs you need to deal with immediately and can’t wait until your next paycheque.

While it’s impossible to completely prepare for the unexpected, you can take a few steps that will help.

1. Keep some cash on hand — in your wallet or at home. There are benefits of having some cash in your wallet at all times. Cash is accessible right away, safe to use, and can be used for anything from last-minute groceries to school field trip fees. Cash can be used even if online payment services are malfunctioning. You might even get a discountDiscount When something sells for less than its normal price.+ read full definition for using cash at some restaurants or retailers.
2. Start a savings accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition with automated contributions. It’s important to have a savings account, for many reasons. Savings goals can be both long-termTerm The period of time that a contract covers. Also, the period of time that an investment pays a set rate of interest.+ read full definition and short-term, and one important short-term goal is the unexpected. Even a $500 or $1,000 savings buffer might mean the difference between being able to handle an unexpected expense, and needing to take on a loanLoan An agreement to borrow money for a set period of time. You agree to pay back the full amount, plus interest, by a set date.+ read full definition or more credit card debtDebt Money that you have borrowed. You must repay the loan, with interest, by a set date.+ read full definition.
3. Build a larger emergency fund for times of bigger uncertainty. If you’re already in the savings habit and have a $1,000 buffer accumulated, keep it going until you’ve got a month’s worth of living expenses. Then you can work towards three to six months if you’re able. If or when an emergency strikes, you’ll be glad to have savings.

If you haven’t started building your emergency fund, there’s no better time than now. Read our tips to get started.

Budgeting is one part of your financial plan

Financial challenges are hard to predict in advance. Some unexpected expenses can also come from widespread changes in costs due to inflationInflation A rise in the cost of goods and services over a set period of time. This means a dollar can buy fewer goods over time. In most cases, inflation is measured by the Consumer Price Index.+ read full definition, interest rates, or market events. These kinds of surprise expenses will likely continue for the long term, rather than as a single emergency.

When this kind of budgeting challenge strikes, it’s helpful to review your financial planFinancial plan Your financial plan should cover every aspect of your finances: saving and investing, paying down debt, insurance, taxes, retirement planning and estate planning.+ read full definition more fully — your saving and investing goals, debt repayment needs, time horizonTime horizon The length of time that you plan to hold an investment before you sell it. This may be a brief period of time or span as long as decades, depending on your financial goals.+ read full definition for investing, and so forth. It may be necessary to make changes to one part of your financial plan to accommodate the others.

Speaking to a financial advisor or debt management professional can also help in tough times.

Key points

1. Occasional expenses happen throughout the year and can sometimes be predicted.
2. Plan for occasional expenses by putting some of your monthly budget towards them. Save money for later if you don’t need it that month.
3. Unexpected expenses take you by surprise and need to be paid right away.
4. Prepare for unexpected expenses by keeping some cash on hand and building up your savings to handle an emergency.