- Occasional Expenses:
Budget for occasional events, like your car overheating or your computer crashing, by creating special funds earmarked for these. Contribute a small amount every month to a special savings account earmarked for these situations.
For example: create one fund that's earmarked for "home repairs." A good rule of thumb says you should contribute 1 percent of your home value into the fund each year. If your home cost $200,000, for example, contribute $2,000 per year, or $166 per month, into this fund.
Then create a second fund earmarked for "car repairs." You might choose to contribute $600 a year, or $50 a month, into this fund.
Online banks like SmartyPig allow you to create multiple savings accounts that you can "nickname," or earmark, towards each goal.
Your goal should be to save special savings accounts that are large enough to cover these occasional repair-and-maintenance costs. Obviously, if a major repair pops up while you're still in the process of building these account balances, you can feel free to pull from your "home repair" fund to pay for a car repair.
- Annual Expenses:
Budget for annual costs, like holiday gifts and property taxes, by setting aside a small amount each month into an account dedicated to that event.
Look through your records to see how much you spent on that annual event last year. Divide this lump sum to find a monthly average. This is the amount you should set aside every month.
For example: If you spend $600 on holiday gifts every December, set aside $50 per month -- or about $12 per week -- throughout the year. Then you won't get hit with a huge year-end bill that you're scrambling to pay.
These budgeting worksheets should help you figure out how much you'll need. This way, you won't get caught by surprise!
- True Emergencies:
A real emergency is a once-in-a-lifetime event like a job loss. This is different from an "occasional expense" like a car repair, which happens often enough to be predictable.
Build the fund large enough to cover three to six months of your total living expenses, which will help tremendously if you lose your job. Aim for a fund that covers six to nine months of living costs if you’re self-employed or have irregular income.
Here's a more detailed explanation about emergency funds.