One of the main reasons that people stop using their budget is because there are too many expenses that don’t seem to have a place. While for many, this random assortment of expenses is enough to make you wince, the author of the article Ryan Barnes says it’s an easy problem to fix. He suggests creating a ‘miscellaneous’ category. Barnes advises that a “target budget for miscellaneous expenses can be made by simply looking over purchases made over a few months time and calculating a simple average. What came up that had to be fixed, bought or borrowed? Would you be able to include those surprises in any of your other categories? If not, then add these miscellaneous costs to your budget to cover for the rest of the year.”
This seems like simple, practical advice, but in reality it’s not always so easy to implement. For some, the miscellaneous category of their budget can become a black hole of eating out, unexpected medical costs, spontaneous trips and other excuses not to save. So how then, can you prevent falling victim to a black hole in your budget?
Be a prepared budgeter
First of all, let’s define miscellaneous. In a budget there are fixed costs like rent and bills, and then there are variable costs like utilities and clothing. Just because the costs can’t be accurately predicted does not mean they won’t happen.
It’s at this point that you should create a budget that, as much as possible, reflects your spending habits. That includes estimating things like medical costs and car expenses like fuel, insurance and repairs. It’s not that hard to guess what things might cost, especially if you’ve been a responsible bill-paying adult for some time. Even gym membership and cable TV are to be considered when you budget because while they are not essentials, budgeting is about taking a broad, honest look at your expenses and then making cuts where necessary.
In a recent article from NBC News, it was revealed that readers say their mobile phone bills are the biggest culprit when it comes to budget killers. The report states that “families are hit hard because they often have three, four, even five phones. And it’s getting harder and harder to beat back teenagers’ demands for smartphones. It’s even harder to stop them from gobbling up precious data allotments with video downloads.”
However, there should be no excuse for this kind of fixed bill to take any budgeter by surprise. In fact, when taken into account, it will only make it easier to prioritise and make necessary adjustments. If like the readers in the survey you feel that connectivity is an essential, then you’ll just have to make cuts somewhere else.
Barnes explains that “sometimes the answer is as simple as re-evaluating your original budget for any missing categories or places that you might have underestimated. Gifts and travel should have their place in your budget, and entertainment expenses should include eating out and small impulse buys like magazines and snacks.”
Become an accountable budgeter
Part of the process of budgeting, is becoming accountable for your expenses. If you don’t start with an honest approach, you’ll find yourself with expenses that don’t have a home in your budget, creating an ever larger miscellaneous black hole and this can be discouraging.
By including enough categories to cover your habits, and thereby reducing your reliance on the dreaded black hole of miscellany, you’ll be better able to track your expenses, and discover where and how you can make reductions. To help track it can be worth setting up an online basic bank account that allows you to track your income and expenses at all times. Many online banking products offer a two pot system that allows you to allocate income to fixed costs and essentials by way of standing orders and direct debits. The variable costs can then be managed using a prepaid card which helps prevent overspending, overdraft and spiralling into unwanted debt.
So to avoid the miscellaneous black hole becoming an obstacle between you and your budget, sit down and take stock of your existing plan. Andrew Beattie from Investopedia.com suggests that a way to tackle unexpected expenses is to create an emergency fund. Beattie believes it’s the key to creating a better budget in 6 months, “budgeting starts with tracking expenses, eliminating debt and, once the budget is balanced, building an emergency fund. To speed up the process, start by building a partial emergency fund. Ideally, everyone should have a minimum of a few months’ wages sitting in a liquid account for any unpleasant surprises. This emergency fund acts as a buffer as the rest of the budget is put in place, and should replace the use of credit cards for emergency situations.”
So whether you choose to create an emergency fund to cover a range of budgetary offences, or you decide to create more and better categories to make your budget more user-friendly, tackling the issue with an honest approach is the first step to becoming accountable and getting on the road to fiscal fitness.
About the Author: Reporting from London, William Masters has established himself as an in-demand finance journalist for topics of international economics and helping people in debt.