A budget can provide you with a road map for staying on track with your finances. Your budget should show all of your income from all sources, in addition to all of your financial obligations that must be paid during a specified period of time. To make your budget as accurate as possible you must include both your fixed expenses and all periodic costs.
Your household budget will include two types of regular expenses: fixed and variable. Your fixed regular expenses are those bills that come due each month for the same amount. Fixed regular expenses may include your car payment or mortgage payment. Variable regular expenses are also bills that come due each month, but the amount of the bill vary. Your utility bills are examples of variable regular expenses.
Your household budget may also include fixed and variable periodic costs. Fixed periodic costs include those bills that come due on a regular basis, but not on the same schedule as your fixed regular expenses. Your annual automobile registration is an example of a fixed periodic cost, because it only comes due once each year. Variable periodic costs are usually event-based, and may include unexpected trips to the dentist, vacation expenses and birthday gifts.
Budgeting for Fixed Periodic Costs
It is important to make provision for fixed periodic costs when you develop your household budget. While you may only have to pay your auto registration once per year, you can plan for the payment all year long so you are not surprised when the time comes to make that payment. Include a line item in your budget for fixed periodic costs. Add all of your fixed periodic payments that will come due during the year and divide the sum by 12. Set aside that amount of money in a savings account each month, and use those funds to pay your fixed periodic expenses as they come due.
Budgeting for Variable Periodic Costs
Budgeting for variable periodic costs can be more challenging than budgeting for fixed costs, since you don't really know how much money will be involved, and may not know exactly when these expenses will occur. You can prepare for variable periodic expenses by reviewing your expenses for the past few years. Determining how much you spent for variable periodic expenses will give you an idea of how much money you should set aside for such expenses in the future. Divide the projected amount by 12 and set aside that amount of money each month in a savings account, and use those funds to pay your variable periodic expenses as they occur.
- Money Management International: Identify and plan for periodics
- FreddieMac: Budgeting for Periodic Expenses (pdf)
- U.S. Department of the Treasury: Money Math Lessons for Life
- Consumer Financial Protection Bureau. "Budgeting: How to Create a Budget and Stick With It." Accessed March 3, 2020.
- Iowa State University Extension and Outreach. "What You Spend." Accessed March 3, 2020.
- You Need a Budget. "Embrace Your True Expenses." Accessed March 3, 2020.
- U.S. Small Business Administration. "The Dollars and Sense of Small Business Ownership." Accessed March 3, 2020.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.