“I don’t know where my money goes,” is what I often hear from friends and clients. Direct debits make it very easy to set and track monthly expenses, but what about those stealth costs that appear out of nowhere? Car repairs, boiler repairs, cat repairs. An unanticipated bill for £200 wreaks havoc with our current account, and it can take months or even longer to recover.
Here’s how to identify and prepare for those unwelcome demands.
Go through your statements for the last 3 years (they’re probably available online if you no longer have the paper copies). Remain alert for any major irregular expenses, such as new glasses, a replacement clutch, or a new carpet after the dog got caught short.
Hopefully, you won’t need a replacement clutch every three years, but there’ll almost certainly be another car part that demands a chunk of your pay packet. So, organise these expenses under headings, such as car repairs, household maintenance, or pets. Work out how much each of these areas has cost you over three years and divide by 36. You now have an approximate monthly amount.
Now consider those big expenses that are predictable, yet we never prepare for, e.g. Christmas and holidays. Imagine how amazing it would feel to pay for festivities up front and not have to come back down to earth with a massive credit cardbill. How much would you need to set aside each month to stay in the black?
If you’re able to budget for these amounts, it’s worth stashing the money in a separate account. Otherwise, you might check your balance and think you’re rich. Automatically diverting the funds where you can’t see them helps avoid both confusion and temptation.
Of course, that new thermostat might end up costing more than anticipated, but at least you’ll have most of the money towards it. Conversely, you could find yourself with some surplus cash if your car/boiler/cat behaves itself.
The downside of this exercise is that you’ll initially feel as though you have less money to spend each month. But, you’ll be in control and you won’t get any stealth bills.