What is a periodic expense?

What is a periodic expense?

Periodic expenses are irregular yet predictable expenses. Unlike fixed expenses, they don’t occur on a monthly basis. For example, tuition payments would be a periodic expense. Tuition can be paid quarterly, but isn’t paid on a consistent, monthly basis. Other examples of periodic expenses include:

• Club membership fees
• Property taxes
• Summer camp
• Birthdays
• Vacations
• Property taxes

In addition to periodic and fixed expenses, it’s also important to account for variable expenses. Like periodic expenses, you typically know these expenses are coming. However, their price points are not fixed. This can include holidays, gas, and car maintenance, like an oil change. Although you can’t always predict the total cost of these expenses, staying aware of upcoming expenses can make budgeting easier. You can prepare an adjustable budget, allocating money for a cost range that you anticipate in the future.

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How to budget for periodic expenses

The irregularity of periodic expenses can surprise you when you least expect it. For example, if you own your own business and are required to pay quarterly taxes, it can affect your financial health. You might have to dip into your savings, and because of this you may have less money to spend for future expenses. To avoid this, take control of your financial planning. Review all your periodic expenses on a yearly basis and incorporate them into your monthly savings. To start, you can check annual bank statements and review the frequency of all your periodic expenses. If you’re in school, check which days tuition payments are due throughout the school year at the beginning of the year. That way, when payment date rolls around, you can be ready for it.

You can extend this same methodology to any upcoming holidays or birthdays throughout the year. Outline which days you plan to buy gifts for your friends and loved ones and allocate money in your budget accordingly. To properly allocate savings for all your periodic expenses, add up all periodic expenses in a year. If you want to account for inflation and have a cushion in case prices increase, you can also add a reasonable margin to your estimate. Multiply the total amount by 5% to 10% and then add that additional percentage to the initial sum. Once you have the total sum of your periodic expenses, divide them by 12. You can add your periodic expenses budget to your monthly savings, so all your expenses are accounted for.

Benefits of budgeting for periodic expenses

• You have a true picture of your expenses. By including periodic expenses, it paints a holistic picture of your true expenses. You are accounting for your monthly fixed expenses, setting aside funds for variable expenses in your savings, and now are accounting for periodic expenses. By having a realistic budget, it makes it easier to stick to.
• Alleviates stress. Since your budget is accounting for all your expenses, you can worry less about your finances. Unexpected expenses won’t hit your bank account at inconvenient times if you have already prepared for them. Quarterly taxes, car maintenance, and tuition payments won’t surprise you and you can handle your bills without any stress. Well, at the very least, it’s less stressful than not accounting for them.
• You don’t pay the full cost at once. Implementing periodic expenses into your monthly expenses, helps alleviate the burden of paying for it all at once. A fixed amount is pulled out of your paycheck every month, so you don’t have to worry about coughing up money for a large, irregular expense.

Preparing for periodic expenses can help you budget effectively. However, you should still have money set aside for an emergency. Learn about emergency savings funds and more budgeting tips.