Budgeting 101 – Part 4 of 5

February 14, 2017

In this Part of our series, we will discuss lumpy expenses; we reviewed annual expenses in Budgeting 101 – Part 3 of 5.

As I call them, lumpy expenses are expenses that we know (or should know) are coming down the track and will have to be incurred but only happen once in a lifetime or only once every couple, few, 5, 10 or 15 years (or so).

These types of expenses include; new tires for your car, helping your kids fund their post-secondary education, children’s weddings, significant dental or other medical procedures that are not covered by insurance, or significant home expenses.

These types of lumpy expenses can cause significant stress if you have not prepared for them. Yes, it would be ideal to save all the required money in advance to be there when needed.

But this is not always realistic. If you can’t save enough in advance, you may need to delay the expense (if you can) or arrange for credit to cover the part that you can’t save enough for. If you need credit, you may need to start working on paying down existing credit to make some room or work at improving your credit score to help you qualify for credit.

Also, you may need to start managing expectations lower.

For example, kids may expect to go away to University or College, but this may be too costly. Can they attend University or College in your community and live at home? That would save a lot.

The kids may also qualify for student loans, and this could help fund post-secondary education. You could then help them pay the student loan, and this would stretch the funding period for this expense over a more extended period, making it more manageable.

Another area where expectation management is required (start early) is wedding expenses. Set a budget you can handle, figure out how you will fund it and stick to the budget and funding plan.

Dealing with lumpy expenses requires planning, expectation management and being realistic about what lifestyle you can afford.

You also need to manage Goal Expenses if you have room for them in your budget after monthly, annual and lumpy expenses are covered. A goal expense could be taking a cruise or other vacation, buying a recreation property etc. These expenses tend to be purely discretionary in that they are not required in order to maintain you and your family.

Unfortunately, I see many people finance their goals (lifestyle) and take money out of their budgets to the point that they do not have enough money to cover the required monthly, annual and lumpy expenses. Sometimes, these are impulse purchases and can have severe negative consequences for your finances while providing some immediate gratification.

Powell Associates Ltd. is a Licensed Insolvency Trustee. We are experienced, hands-on insolvency practitioners who understand the personal impacts of major financial stress;

You won’t be stuck in an assembly line process.
You will expect and receive prompt responses and resolution of issues from our supportive and experienced team.
We will review your debt solution options, including filing a consumer proposal or personal bankruptcy.
We help Canadians with overwhelming debt get fresh financial starts.

Once you file a consumer proposal or personal bankruptcy, we deal directly with your creditors on your behalf. Your unsecured creditors are required to stop contacting you or continuing legal proceedings against you. Contact us for a free, no-obligation consultation.

We offer free consultations to review your financial situation and practical debt resolution options. Contact us to discuss your situation over the phone, a video chat, or in-person in Saint John, Moncton, Fredericton, Charlottetown, Dartmouth, or Miramichi.