Photo by Matt Duncan from Unplash

How to Budget: How to Plan Ahead for Fixed Expenses on a Tight Budget

In a previous article, I showed you how I save loose change in anticipation of birthdays and holidays. The key is to start early, be consistent, and prioritize only the most important events.

In this article, I want to talk about how you can save up for fixed expenses so you’re always a little bit ahead of the curve.

It doesn’t really matter how much you’re making each month. Obviously, the more you make the more you can save, but, like with coins, saving small amounts of money at a time pays off in the long-term.

Step 1: Plan Your Current Month’s Finances.

First, you must make sure you can cover your expenses for the current month. In previous articles, I shared the forms I use to plan and track my fixed and variable expenses.

At the start of the month, I am usually two to three hundred dollars short (!!) of my necessary expenses. Before I can even start thinking of putting money away for later, I need to make sure I can cover impending expenses, whether it’s fixed expenses like rent or insurance, or variable expenses such as fuel or food.

Despite starting each month in the red, I never close a month in debt, late on payments, or without at least some money aside for the next month.

Saving for the future is possible to do, even if you’re on a tight budget.

But planning ahead is infinitely harder to do if you don’t plan out your finances first: you may be short of money for a payment; you may get your bill payment days mixed up; you may forget to pay a bill; you may overspend much more in a certain category than you realize;… the list goes on almost infinitely.

Keep track of it all. If you’re short, get the money put aside as soon as you can. If you’re overspending, try and cut back so that money can go somewhere it’s needed more urgently. And always write your bill payment days in every calendar you use or look at (wall calendar, phone calendar, paper planner…) so you minimize the risk of missing your payment days.

Step 2: Set up Expense Funds

If you’ve read my article on saving money even when you’re broke, you will know that I like to save my money in what I call “saving funds.” These highly-sophisticated funds are nothing more than Ziploc bags stored in a briefcase in my house.

Well, I am also a fan of this Ziploc method to store my “expense funds,” which cover either recurring fixed expenses or seasonal fixed expenses.

When you have the budget for it, it is always better to try and save enough money to cover all fixed and variable expenses. The consensus appears to be that 3-6 months of saved expenses is best, but honestly, there isn’t any limit. 6 months is better than 3 months; 12 months is better than 6 months; half a month is better than nothing at all.

And when you’re working with a really tight budget, even getting $50 ahead of next month’s bills is a great achievement.

image by Toa Heftiba taken from Unsplash

In my case, I would be stretched too thin if I tried to save up for all of my fixed expenses, so I prioritize the fixed expenses that reoccur every two months, occasionally, or seasonally. For me, these funds are:

🠊 Electricity: We pay our electricity every 2 months. My husband is a mechanic (among many other things), so he uses a lot of electricity in the shop and our bill is quite high. I am always putting money aside when I can so that when the invoice arrives we don’t suddenly have to scramble to put an extra $300 or more aside.

🠊 Firewood: In the winter, we heat our trailer with firewood. Every year starting around August, I begin putting money aside for that expense.

🠊 Water: We are billed $40 for water every month, but we pay off the balance only every few months. We live on Reservation land and things are just done differently here! That being said, I put $40 aside in a “Water Fund” every month, so that when we go pay the bill, that money is already on hand.

Those are my current “Fixed Funds,” but you can create any kind of fund that makes sense for your situation.

I want to note that there is always an implicit hierarchy of priority among my expense and saving funds. Although I try to keep my saving funds for their designated purposes (in my case: our birthdays and Christmas), if times get desperate, that money is first to be reallocated to necessary expenses. But, when times are good, I’d rather have a little slush fund and try to find money for future fixed expenses elsewhere.

We humans are not robots, after all. We need a little sunshine and anticipation in our lives.

Step 3: Squirrel Away Money

A common piece of financial advice I have read is to put aside 10% (I’ve also seen 20%) of your paycheck every month for emergency savings. If that is something you do and that works for you, that’s great!

In my situation, saving 10% or more of our monthly income is not possible. We just don’t make enough money. I also think that, no matter how much money you make, you should always save as much as you can and that makes you comfortable, regardless of percentage.

You can save money even if you’re on a tight budget. I have adopted the mentality of a squirrel: snatch up “discarded” bills and put it in whichever fund I think needs it most.

Of course, the bills are not discarded! But, I have noticed that, like loose change, smaller denomination bills like $5 and $10 tends to get spent on smaller, more frivolous expenses that I could really do without. So, whenever I see one of those bills in the “general house fund” (the unassigned money meant for general spending that month), I tend to take them out and put them in whatever future “expense fund” needs it most (there is always an “expense fund” that needs it!)

image by Bermix Studio taken from Unsplash

Because my husband and I are self-employed, we have small, but irregular, streams of income trickling in throughout the month, which I allocate when we receive itβ€”never count your chickens before they hatch!

For example, if I receive $120 for babysitting that month, here is how I may distribute the money:

🠊 $40 for groceries if I’m short on my $75 weekly budget (I try really hard each week to spend less than $75 because whatever I don’t spend can get put elsewhere). If I’m not sure on that week’s budget, I will probably put that $40 in the future electricity fund, unless something else more pressing needs that money.
🠊 $60 for firewood (we pay $120 per cord. So, let’s say I’d already put $40 earlier, that puts us at $100 and now we only need to find another $20 before we can get another load of woodβ€”much more manageable than trying to find $120 in one go!)
🠊 $20 to put gas in the car.

If you’re not self-employed and only receive one or two fixed paychecks a month, you can still save for future expenses. You can:

🠊 Treat future expenses like a fixed expense and put a sum aside every month (I recommend just going by however much you can afford and feel comfortable with after you’ve accounted for all other expenses).
🠊 Save the change you receive after making purchases on your variable expenses. For example, if I go to the grocery store and only spend $69 of my allocated $75, then I’ll put $5 in a fixed expense fund and $1 in a savings fund. It may not look like a lot written down like this, but I promise you, these sums do add up.

How do you go about saving for future expenses?

Conclusion

If your finances allow for it, it is always better to put more money aside for future security. However, it is also possible to build a stash one nut at a time.

I have no fixed system of percentages for how money I put aside, because my financial situation is never the same from month to month or even week to week.

I have great fun managing money this way. Not only is it similar to a problem-solving game, but it keeps me in tune with my family’s financial health, which is a highly rewarding task in and of itself.

Staying ahead of your finances
has real-time, real-world impact.

In December 2019, my husband and I were hit nearly head-on by an oncoming truck that veered across the centre line. My husband suffered a broken arm that has still not fully healed, post-concussion syndrome, and severe whiplash. He was only able to start working again, albeit at diminished capacity, in early June 2020.

Our poor RAV 4 was a write-off after the accident…

Three things saved us, financially:

πŸŽ” Our Canadian health care system. Although our health care system has its flaws, my husband was able to undergo two surgeries (and he might need a third) without putting us into unmanageable, crippling debt;
πŸŽ” Our budgeting habits, which allowed us to see immediately where we could cut back to save money while we were out of work; and
πŸŽ” Our “expense funds,” which, though only little cushions of security, went a surprisingly long way to helping us stay afloat during the winter and early spring while he rested and let his body heal.

If we can do it with our limited budget β€” you can do it, too!


Head over to the series masterpost to start the series from the beginning or to find a specific article within the series.

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