Budgeting for Large Expenses: A Step-by-Step Guide

No matter how detailed your monthly budget is, life will occasionally throw a large and possibly unexpected expense your way. This can make it impossible to keep spending completely consistent from one month to the next—and if you’re living paycheck to paycheck or trying to keep spending to a minimum, these irregular costs can throw your planning out of whack.

If your finances are already tight, a large upcoming expense can feel like an insurmountable obstacle. One way to make these large expenses more manageable is to take the following simple steps when budgeting to build more room into your budget before the expense arrives. 

1. Determine the amount of the expense and your timeline.

Before you start budgeting, figure out what you’re up against. How much money do you need, and when? For large expenses such as buying a home, the timeline can be more flexible to accommodate what you’re able to afford. Other expenses, such as college tuition, present more of a deadline: If you’re unable to save up enough money on time, you may consider delaying those college courses.

By figuring out the size of the expense and how long you have to save, you can create a practical savings plan to meet that goal.

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2. Make space in your budget for monthly savings.

Divide the amount you need to save by the number of months you have to build up those funds. The result is the amount you need to save every month. Once you have this number, it’s time to revisit your budget and figure out where you can account for this added expense.

If the large expense you’re planning for is important, it is smart to budget for it as a fixed expense, placing it alongside rent, car payments, student loans, and utilities, and above recreational spending on restaurants and entertainment. If you’re saving for a vacation or some other nonessential cost, you might choose to be more flexible about your savings plan

You can also use a budgeting calculator to create an updated budget that builds in savings to put toward this expense. However you approach this process, your budget should be balanced in the end to account for monthly savings that will have you on track to afford the expense.

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3. Consider whether an additional income source is needed.

It may be challenging to factor the costs of certain large expenses into your current budgeting routine. In that case, it might be time to consider a side gig or a second job to help earn the funds to cover those one-time costs.

Figure out how much you need to earn through a second income source, and review your work schedule to figure out how quickly you can save up. This will depend on your current work schedule, the amount you’re able to earn through your side gig, and the amount of time you’re willing to work each week to make up the difference. From there, you can explore your options for making a little extra money, whether that means taking up an hourly part-time job or seeking out a side gig that offers a flexible source of income, such as walking dogs or shopping for groceries for a senior adult.

4. Put dedicated funds in a safe space.

As you save, make sure your funds are being placed in a safe location away from your checking or regular spending accounts. Whether you use a savings account or another dedicated account or fund, it is best to place this money out of view to save you the temptation of spending it before you can put it toward a major expense.

Keep in mind that even if you can’t cover the entirety of this one-time expense through your monthly savings plan, you can still build up funds to cover part of the cost and then use a personal loan, credit cards, or other financial tools to take care of the remaining amount you owe.

If you’re really in a bind and there’s no time to save, remember that unforeseen (necessary) costs are exactly what an emergency fund is for. Large expenses can be overwhelming, but remember that there’s always a way forward. Have questions about your finances? We’re here to help—connect with a team member here.

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