Most people don’t really budget for things that are large on a yearly or even monthly scale, but you can and probably should.
For example, I know that I use my headphones a lot and being without them would be really annoying. Budgeting based on buying them asap because I need them is a really painful way of managing that cost because I can’t do anything else at the same time and it is expensive. If instead I set aside a smaller amount while I still have working headphones it is much easier.
My formula for working out the cost is fairly simple. How much does it cost for an item to fill the need? How long do I expect that item to last in the worst case? How much would I therefore need to save per week for that cost to be saved before the current item needs replacement.
My headphones cost around $100. I expect to need replacement not sooner than about 16 months. So I should save $75 per year which works out to less than $2 per week. If I just save $2 per week I will hit my goal of $100 within the year and of something goes wrong earlier I can make the difference up the normal way. If I end up not needing a replacement by the time I hit my goal I can keep saving for a higher cost option or move that saving to another goal to boost that.
Another thing to consider is quality. I’ve had a pair of Bose over ear headphones for 9 years that I bought on sale for about 200$. I treat them like crap and they keep on kicking. I’ve replaced the ear pads twice for 20$. Sometimes quality is worth factoring in too.
What I guess I don’t get with this advice is, if you have the ability to save $X per week, why do you need to know about your headphones, why don’t you just save $X a week?
I understand that people seem to generally use up their expendable income immediately, but for me, I simply saved whenever I didn’t need to buy something. So in the background, without even thinking about it, money just accumulates. And then, when my headphones break, I just use some of that money that accumulated for headphones.
That obviously only works if you have expendable income. But that’s what the original advice requires anyway, it requires this ability of $2 savings per week, so the expendable income is already obviously there.
I just feel like it’s so much work to do this for every single thing, when instead you could just simply save whatever is “over” your survival needs, and then draw from that fund whenever necessary without thinking about each item individually.
Im not great with budgeting but this is what I do. I just keep a pool of money for ‘whatever’ purchases.
I break my savings down into broad categories. It helps keep me honest. I can’t imagine the overhead of budgeting for every single item I might need to replace someday.
This. Budgeting is a nebulous topic which means a lot of different things in different contexts.
For a household, if you don’t have any surplus then skip “budgeting” and go straight to minimising costs and increasing income where possible. If you do have surplus then, well… save it for something.
It is a good teaching tool for budgeting though, especially with kids or people who never have budgeted (which is most people I’ve worked with, sadly).
I didn’t budget for much of my adult life because I had barely enough money to get by. That changed,.and I had to learn how to budget because I knew I would still be living hand to mouth if I didn’t. No matter how much I made.
This is my thinking too. I had a housemate who earned the same as me and paid the same rent, and yet every month he managed to spend all his money while I saved a good chunk. Our pay was okay - not loads, but we lived in an area with a relatively low cost of living so the money went much further than it would elsewhere, so at least saving up a safety net should’ve easily been doable. I suppose it didn’t help that he took every opportunity to go on holiday half way around the world… I don’t think I’m miserly, I just don’t buy random stuff I don’t need. I also refuse to use Amazon, which probably makes things easier.
One downside i see with this is that it is often unclear how long an item will last. For example, I bought my dishwasher in 2021. When will they need to be replaced? The last one lasted 24 years, but I’m not going to bet on the new one lasting as long.
For that example, it should be in your home maintenance budget. That’s a major appliance. It’s going to fall into the same “major unexpected failure” category as anything else in your home.
Right. Basically, I can assume that at at least one thing in the household breaks each year. This year, it was the microwave oven.
Nice thing is that used microwaves are all over thrift stores for like $10 a pop. Our coffee maker broke this month and we got the best coffee maker we’ve ever had for $6.
Yes, and items seem to be manufactured to exceed their warranty period by only a short time. I assume that an item will last for a year in most cases, or the warranty period if that is longer. For white goods like a fridge or a washing machine I look for statistics and use longevity as part of my purchasing process, so I aim to buy appliances which will last a fairly long time and then save based on that not being the most likely outcome. My fridge can be expected to last 5-7 years, so by year 3 I will have enough saved or room made in lines of credit to afford a replacement. Obviously it is best to have nothing accruing interest so I will tend to pay credit down first but some if the credit cards where I am actually have good terms such as a 36 month interest free period. The utility of money during that time is available for other things and I can reduce my costs in other ways.
And most people making that advice don’t really understand that more and more people each year can’t even budget buying their own medication or even decent food to cook with.
It’s like the dog meme with “spend! No salary, just spend!” But with saving and investing.
But what about babies? They don’t even know what money is!
Few advices are universally applicable. Pick up what you need, leave the rest for others.
That’s a good idea! I do things differently (basically adding money to different “pools” to use for different categories), but if I need to forecast how much I’m going to spend on things, this would really help.
I tend to assume that something I buy will last forever (unless it’s explicitly replaceable)…but that’s basically never the case these days.
I do the pools idea too.
But every Christmas I sum my expected non regular expenses (maintenance fees, insurance, dentists, cloud storage, etc) and divide by 12 to get the monthly cost so I can spread out the expected budget busters.
Otherwise August/September give me a shock - lots of big bills then.
I have an Excel file for recurring expenses with dates of recurrence and auto-calculated yearly and monthly totals, and these factor into my monthly/yearly “budgets”. And thus, into how much I need to maintain my emergency fund!
