Budgeting is Key to Avoiding Big Unforeseen Bills: Managing Your Personal Finances

Over the years, I have learned from personal experience that budgeting is the key to managing large and painful household bills.

We’ve all had them, haven’t we? The boiler breaks down and is beyond economic repair, your car goes into service, they run into problems, and now you have a big bill that you didn’t expect and more importantly, you can’t pay. And yet you have to pay for it anyway, right? No choice. This is why it feels painful and you can’t help but feel excited about it.

However, there is a way to manage this. To do it less or even completely emotion-free. And it’s something you can do easily, very easily.

The budget is extremely easy to set up and very effective. Of course, it doesn’t make the bill go away, but now you can pay it, so pay it and move on.

Let’s take your car as an example. All you do is sit down one afternoon or weekend afternoon and look back to see what your running has cost you over the past 12 months. And the categories are really easy. If you are in the UK it will be MOT, road tax, insurance, service and repairs. You could include fuel as it is a cost of course but I don’t bother as you pay for this in continuous smaller amounts anyway. My formula also excludes depreciation, which if you have a fairly modern car is probably the biggest cost of all. So if you want to be HIGHLY ORGANIZED, you can include that too. However, let’s go back to my example.

Let’s say your invoices (technical inspection, taxes, insurance, service and repairs) for the last 12 months amount to £ 1,800. Just divide that by 12 and that’s what it’s costing you to run your car each month – £ 150. That’s what you want to set aside from your monthly payment every month. I suggest creating a new savings account and direct transfer every month. That way you don’t have to think about it. You are saving automatically.

Then of course when the bill comes in for £ 472, you simply pay it off and transfer the same amount of your savings to your checking account to top up. Easy, huh?

Admittedly, it doesn’t mean you spend less, but it really makes it a lot easier to manage. Of course, you could have separate pots for different expenses: car, home repairs, even saving for the holidays. It means you live within your means more easily and take the headache out of big “unexpected” bills.

System weaknesses: none as far as I can see. Okay, you are a little poorer every month, but in the end it means that your finances are more balanced. What happens after 3 months when you have now saved £ 450, but get that bill for £ 472? You don’t have enough. And that? You only have £ 22 left. Doing it in the previous way, he was short of £ 472. Which is better ?!

So budget, set up new savings accounts, and take the excitement and stress out of handling big bills.