It’s hard to account for everything that needs to go into a budget. After you tick through the obvious items - rent, gas, groceries, loans, insurance - you have to start thinking about all those items that walk the line between want and necessity. Once you get to that point, I can’t step in and tell you what belongs in your budget and what doesn’t.
For some, a gym membership is a must. For others, it’s $80 each month that disappears without a weight being lifted or a treadmill being trodden upon. That’s part of the reason you need to make a custom budget; you might have a knack for penny-pinching where others cannot, while you simply cannot live without certain organic foods other people happily skip. As universal as the need to budget may be, it’s still a very personal endeavor.
With that caveat established, I’m going to suggest some categories that might belong in your budget no matter what. Whoever you are, wherever you live and whatever you make, at least one or two of the items below should motivate you to save a little extra each month. They may feel like luxuries, and a brand new car is often just that. But these (mostly) material items can drain your bank account at the worst possible moment, driving you into debt and turning a simple mistake into a big, lasting problem.
I constantly advocate for the emergency fund, which typically covers a lost job or medical emergency that halts your income and puts your back against the wall. Ideally, when you need a new set of tires or your garbage disposal breaks, you don’t have to touch that fund. Instead, you have money saved up for just such a thing; it doesn’t qualify as an emergency fund, because the savings help you avoid the actual emergency.
As you spread your salary around to cover the many costs that come with adulthood, keep the following in mind. A little money tucked away might just keep you from a financial fiasco.
Saving up for a car doesn’t sound like a small feat. If you buy something relatively new, you’re looking at upwards of $10,000 at the very least, and maybe 10 times as much. For someone living paycheck to paycheck, a new car doesn’t even enter the realm of possibility.
Until the old car dies and you have no choice.
The problem with under-budgeting, and the entire reason for an article like this, is that you can easily put off saving for something. It doesn’t take a lot of effort to convince yourself you can’t afford a new car and therefore you have no motivation to set money aside for one. Then, when you have to replace a totaled vehicle or risk losing your livelihood, suddenly you can afford to pay for a new vehicle on credit.
If you already have a lease, congratulations! That monthly fee counts as your car savings fund. For anyone driving a clunker that only starts after a serious pep talk each morning, it’s time to start kicking a few bucks a month into the car category.
A much easier replacement than an automobile, your cell phone is also less likely to be insured and more prone to falling into a toilet. Since most humans can’t function without a smartphone these days, you ought to prepare your bank account for when you need to get a new one.
Fortunately, lots of cell phone providers let you pay by the month for a fancy new iPhone or Android. Unfortunately, the consumer financing option costs significantly more than buying the phone outright. This practice is common in all industries, but at the rate people buy and replace cell phones, it starts to add up pretty quickly.
When it comes to budgeting for your cell, you have different things to consider:
● Monthly fees
● Practical use
● Cost to upgrade
Naturally, you have to think about your monthly usage bill in addition to whatever funds you use to buy a new phone. If you’re struggling to pay the basic services charges each month, I need you to stop reading this post and dig into my blog archives to find something about the basics of budgeting.
If it’s easy to add $10/month to your existing phone bill to cover a new phone, that’s fine by me. If it’s not too much trouble, you can put money aside and save $100 or so by buying the phone outright. Most of us tend toward paying a little more over a longer period of time, but avoiding that habit can save you thousands of dollars each year.
While you mull these different factors over, think about what the phone is actually worth to you. If it gets used for work or it’s part of a family plan, the ends could justify the means. If you just really, really like taking pictures of your food, you could probably skip the latest model and find a better way to spend your money.
The line between computer and phone continues to blur, but one still has a little more importance when it comes to work, life, and everything in between.
When you buy a computer, it feels like a magical device that will last forever. A few years in, it starts looking like an archaic machine that has you waiting while images load and time passes you by. If you want to keep up with this technology-laden world, you have to keep up with your computer expenses.
Unlike your phone, there’s a good chance you have digital possessions of value stored in your computer. That means you might be willing to pull out your wallet and hand over a decent amount of money for someone to restore files that might otherwise be lost. You can take steps to prevent such a thing from happening, and if you don’t have a computer savings fund it’s probably a very good idea to take whatever precautions you can.
Because we tend to take slightly better care of our laptops than we do our cell phones, there’s often less thought given to replacement. But with how important your MacBook is, don’t you want to be ready to replace or salvage it when something goes wrong? I think it’s a good idea to insure something as valuable as a computer, but you should also have money set aside in case insurance won’t cover it.
Advancing technology offers another reason for concern when it comes to computer funds. You never know when the latest innovation will put your business behind the competition, forcing you to pay for an upgrade in order to keep pace. If you can get financially prepared for such an eventuality, yours might be the company that leaves others in the dust.
Take it from my aging back: a good mattress is worth every penny.
While computers and cars announce their depreciation pretty loudly, that slab of springs and foam and fabric you sleep on is much more subtle. It goes superficially unchanged while slowly losing its bounce and becoming less and less supportive. You may have grown accustomed to sleeping on a rockhard futon in college, but as the years go on your body becomes less forgiving of such things.
When you finally do spring - some puns are unavoidable - for a new mattress and get something that has you sleeping like a baby, you won’t be able to go back. At that point, comfort goes from a luxury to a necessity, and your savings better reflect that every few years. You don’t need to go nuts and buy mattresses in bulk, but bringing in a new one every few years will keep you from rushing for the Advil when you wake up each morning.
Hopefully you don’t get addicted to a $5,000 mattress. Something in the $500 - $1,500 range should do the trick. In all seriousness, a bad mattress can lead to pretty significant back pain, so I fully support putting a little extra aside each month to buy something that improves your health.
There are two main reasons to have money ready for window replacement:
1. Kids and baseballs
2. Old windows are more expensive than new ones
This is one of the best examples of losing money because you can’t afford to spend money. Living in Texas, there are some days when my family and I would die without running the A/C. On those days, shoddy windows can drive my energy expense up by something ridiculous like 40%. If you spend an entire summer paying 140% of your energy bill, you’ve wasted a lot of money.
Unfortunately, unless the neighborhood kids do hit a line drive through the glass, most people never think to replace a window that isn’t cracked. If the frame works and the panes slide open, why pay for windows when there are so many other things you want to buy?
In the interest of financial responsibility, don’t ignore this expense. See if you can work it into your budget and start checking around to see what it costs to have energy-efficient windows installed. Once you make the purchase, you shouldn’t have to do it again for 10 or 15 years. That gives you plenty of time to put money aside for the next round.
When you own a home, you pretty much have two budgets. One for all the expenses outside your home, and one for the millions of things that need to be fixed and replaced inside. In my experience, those stoves and dishwashers and faucets and microwaves can only handle so much before they need a little TLC.
Since you can’t predict what’s going to break or how much the repairs will cost, you can only hope to have a little cash at the ready when something does go wrong. Murphy’s Law usually means your fridge will stop working right after you replace the garbage disposal, meaning you can never be too cautious when it comes to repair savings.
For those of you who rent, don’t take the money you save for granted. Instead of paying to fix the amenities that break, you get to put more money toward retirement or getting out of debt. Once you finally move into your own property, then it’s time to section off a big portion of your budget for home maintenance.
Like windows, saving up for preventative repairs can cut back other expenses in the long run. Whether its energy efficient appliances or new pipes that won’t clog, burst, and destroy your floors, you can save a lot of money by spending before disaster strikes. Certain upgrades also drive up the resale value of your home, so that money may eventually end up back in your pocket.
In theory, health insurance will cover the big medical bills that would otherwise threaten your bank account. Unfortunately, time and time again, that theory doesn’t hold up to the realities of people’s situations.
Health insurance is an essential part of a sound financial plan. No matter who you are or how healthy you feel, we’re all just an uninsured slip away from bankruptcy. Make sure you take advantage of whatever plan you might have access to and see what assistance programs your state offers if you’re struggling to cover insurance premiums.
All that said, there are still those moments when you switch jobs or discover that your coverage doesn’t actually cover as much as you expected. Far too many people fall prey to the deductible assault, leaving the hospital feeling safe and then receiving a $2,500 bill that they have no idea how to cover. Others get dinged on a technicality, with a procedure like dental implants falling under the cosmetic umbrella and insurance refusing to cover any significant portion of the cost.
Whatever the case may be, your ability to cover these fees with the money in your medical category can save the day. A lot of people use their emergency fund to cover medical bills, and that’s fine if you’re consistently adding to that fund. If paying for your hospital visit means you have no other safety net, you might want to think about increasing those saving efforts.
We have so many reasons to save and spend, it can feel pretty overwhelming to try and budget for all of it. The thing is, it becomes far more overwhelming when you actually have to pay for one of these things and you don’t have any money set aside. Budget early, budget often, and enjoy the incredible sense of relief you’ll feel when something unexpected comes up and you’re already prepared to pay for it.