The appearance of Halloween candy on store shelves reminds me that the expensive holiday season is upon us. It’s no coincidence that the holiday season is the most profitable season for many retail segments – they make high profits because consumers do some high-powered spending.
In a past life I worked one-on-one with families on financial issues, and I remember hearing people say things like this: “Everything was fine until the property taxes were due;” or “It was going smoothly up until the holidays.” When that happened a couple times in the same week, it struck me that they were fooling themselves. They thought everything was fine up until the property taxes (or holidays, or car registration, or….) arose. But if they weren’t ready for those expenses (which should not have been a surprise) then things were not fine.
Expenses which are predictable, but don’t come every month, are known as “periodic” or “occasional” expenses. Your finances simply cannot be considered “under control” unless you have a plan in place to deal with these expenses. That includes holiday spending, which many families will experience in the next couple of months, and it also includes back-to-school season and birthdays, as well as bills like 6-month car insurance premiums, annual subscriptions or memberships, and more.
The most systematic way to be prepared is to make a list or chart of the periodic expenses that are due each month throughout the year. Total up your entire annual cost for these expenses, and divide by 12. The result is a monthly average. For example, if your periodic expenses for the year total $2400, that equals $200/month. Saving $200/month toward those expenses is a systematic way to be ready.
The benefits of being prepared when these expenses arrive are many, including: less stress and drama in your life; reduced cost for late fees and interest; greater family stability. If you’re not prepared, that one extra expense has a ripple effect on all your other bills and expenses – you may end up being late (and paying a fee) on other bills, and borrowing money from friends, and putting groceries on a credit card. In other words, the expense you weren’t prepared for can put you into a hole that can be tough to get out of.
Ask yourself: Am I well prepared for the periodic expenses I’ll face throughout the year? If not, take steps to become prepared. You’ll find a chart and spreadsheet for Periodic Expenses, along with other financial management tools, within the free ISU Extension and Outreach web course “Take Control of Your Money,” at www.extension.iastate.edu/humansciences/take-control.