Budgeting for all surprises (good and bad)

Lorna Wounded Head is the Family Resource Management Field Specialist at SDSU.

Lorna Wounded Head is the Family Resource Management Field Specialist at SDSU.

Lorna Wounded Head, Guest Columnist

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Our day-to-day lives can be very routine and easy to predict, and a very large part of your budget will include things like how much you should spend on gas to make sure that you can get to and from the grocery store every week. However, life is full of surprises, both good and bad, and they can make creating an accurate budget a little more tricky.

The Known Unknowns

There are some expenses or gifts that come up that you can expect, without knowing the exact amount. Tax season, for example, happens every year, and, like a good financial star, you made sure to fill out your W-4 as accurately as possible and made sure that you would get close to breaking even on your tax filing. However, tax law constantly changes and circumstances might have changed since you last filled out your form. Because of this, it’s always a good idea to budget a bit of cushion into your spending that month in order to cover your bases. Hopefully you won’t need it and can just add more to your savings that month, but if you do, now you’re prepared.

When it comes to gifts, you may know that your parents always give you $50 to $75 for your birthday, but budgeting isn’t the time to count your chickens before they hatch. That $50 is outside your regular budget that pays for rent and other necessities, so some say you should tuck it into your savings to be better prepared for retirement. Putting your 21st birthday money in your retirement account isn’t everyone’s idea of a good time, so if you put away half or even a small portion of it into savings, then you are helping yourself out and getting some fun pocket money. If that money comes in a gift card, you can still save some of it by using it to supplement your grocery allowance if it’s for a restaurant, etc. As a rule, overestimate expenses and underestimate windfalls.

True Surprises

Sometimes lightning strikes, literally, and a tree falls on your car. You lose your job and it’s hammer time trying to pay for your ramen and all the other things you juggle on a monthly basis. This is what an emergency fund is for. SmartAboutMoney.org has a really great course over this for free, but in a nutshell, it’s three months’ expenses squirreled away in a savings account somewhere that is solely for cases like these. Any time you have to dip into this pot, filling it back up again should be a high priority.

Windfalls can be handled much the same way as above but are just extra surprising. Don’t forget to write a thank you note.

Be Prepared

One of the best ways to handle financial surprises in life is to be prepared. Know where your money is now, so you know if you can handle a surprise expense or if you can use part of that graduation present as a fun spa day. Keeping up on your financial literacy skills is what cashcourse.org, smartaboutmoney.org and practicalmoneyskills.com are here for. If you want to know more about how to manage your finances, you can visit extension.sdstate.edu/tags/family-finances.

Lorna Wounded Head is a Family Resource Management Field Specialist. For questions or assistance about budgeting, contact her at 

[email protected]