The Budget Category Most Americans Underfund — and How To Catch Up
A budget can look perfectly balanced on paper and still leave you reaching for a credit card a few months later.
According to financial experts, the problem often isn't overspending — it's this one less-planned-for area.
How To: Create a Budget — And Actually Stick to It This Month
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The Most Overlooked Budget Category
While retirement savings are often underfunded over the long term, the budget category people neglect most in day-to-day life is irregular but predictable expenses.
Steve Sexton, retirement planner and CEO of Sexton Advisory Group, explained that these are bills that don’t show up every month, like car maintenance, home repairs, insurance premiums, medical deductibles, school expenses, holiday spending and annual memberships.
The biggest misconception, he added, is that irregular expenses don’t belong in the monthly budget: “A good budget should prepare you for the expenses you know will eventually come,” he said.
Why These Expenses Catch So Many People Off Guard
People naturally budget around what's happening “directly in front of them,” Sexton said, and forget about the new tires their car will need or the annual property tax bill.
“When those expenses arrive, they can feel unexpected because the timing may be uncertain," he added.
Underfunding Today Can Create Bigger Problems Tomorrow
Not being prepared for irregular expenses creates problems that have to be handled later. The biggest problem, Sexton said, is using credit cards to cover costs “that should have been built into the budget all along.” It can also create a cycle where the emergency fund is constantly being drained and rebuilt.
“Your emergency savings should ideally be there for a true financial emergency — not every routine expense that happens to arrive irregularly,” Sexton added.
How To Figure Out If You're Budgeting Enough
To make sure you’re budgeting for an entire year's spending rather than focusing on a single month, Sexton recommended people review the last 12 months of bank and credit card statements and look for expenses that did not occur every month.
“Add them together, then divide the total by 12. For example, if you spent $3,600 over the year on car repairs, gifts, annual premiums and home maintenance, you should probably be setting aside roughly $300 each month.”
Mike Rytelewski, certified public accountant (CPA) and certified financial planner (CFP) with Oujo Wealth Strategies, prefers using budgeting apps and an excel spreadsheet to track everything. “What gets measured, gets managed,” he said.
Small Monthly Habits Can Help You Catch Up
You don't have to fully fund every future expense overnight. Sexton recommended starting “with the next expense most likely to occur.” For example, he said, maybe your car registration is due in four months or you know you will need new tires before winter. Divide that expected cost by the number of paychecks remaining and begin setting aside a manageable amount into an account or fund. Then move to the next one.
Use tax refunds, bonuses and other occasional income to establish these funds.
And always “automate it,” Sexton said.
He also encouraged clients to separate irregular expenses from true emergencies.
“A holiday, an annual property tax payment or routine car maintenance should not come out of an emergency fund if you had time to plan for it.”
When it comes to retirement funding, Rytelewski said there’s no advantage to waiting: "Start right now. Even if its $20 per paycheck. Get in the habit of contributing and making sure the money is invested.”
If your employer offers a match, take it — that’s “free” money. Ultimately “Small habits compound to big goals,” he added.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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