Budgeting For Your Financial Goal: That illusive "Other" Category

Thu, 10th September, 2009 - Posted by Nash

Budgeting For Your Financial Goal: That Illusive “Other” Category

In this post, Adam from RabbitFunds.com talks on his experience in budgetting for his financial goal.

So my wife and I were walking through the mall the other day when she noticed a sale at Bath & Body Works for hand soap. I asked her how our supply of hand soap and lotion was doing and she remarked that it was low. I immediately thought of our budget and asked myself if we had room in our budget. I then realized that we had a recurring problem, “Should purchases at Bath & Body Works go in the Grocery budget, the Personal Care budget, or some other more appropriate budget?”

Now, I imagine that you may be thinking that I am splitting hairs, and I probably am. But this brief conversation in my head gave way to a larger problem. We have purchases that don’t occur monthly that I don’t budget for since our budget is monthly. Some examples include my wife’s trip to the salon every 4 months (approx. $100), oil changes every 3000 miles (approx. $20), and clothes at the beginning of the school year (I have a monthly Clothing budget, but this exceeds it).

Since I am not budgeting for these infrequent purchases, we use savings to pay for them.

And maybe that’s what your savings are for and maybe not. My savings are intended for specific goals (retirement, vacations, large purchases, etc) and for emergencies. Don’t tell my wife, but her hair is not an emergency. So I hate using savings to pay for the trip to the salon.

I brought this issue up to my wife while we strolled through the mall. We currently don’t have an Other category, in part because I find it too non-descript for analysis purposes. However, “other” happens. Meaning, we need an Other budget category to cover purchases that occur on a less than monthly basis. If it happens monthly, then it should have a dedicated category.

How much should my “Other” budget category be?

Well, that’s a harder question to answer. We use Microsoft Money to budget so I can run a couple of reports and see how much I typically spend on Other. Though from month to month, the amount dedicated to this category is probably a moving target. So here is what I suggest. Make your best guess and start there. So for example, let’s say you estimate that on any given month, you have $75 in non-monthly, non-emergency purchases. After two or three months, evaluate what you actually spent. You should specifically look at two things. First, did you spend more or less than the $75. Second, did you need to spend the money. You may find that your Other spending isn’t really necessary.

So this category is my dump for miscellaneous purchases?

No. Be careful with this category. The purpose of a budget is to understand how much you spend and where you spend that money so you can minimize expenditures and maximize savings/investments. Be sure that you don’t use an Other category as a way to avoid facing the facts. If something can and should be tracked, then do so.

So what is in your budget’s Other category?

About the Author

Adam Williams is the founder and author for RabbitFunds.com, a blog with the purpose to help the average family better understand financial issues, financial planning techniques, and ultimately a delineated path to creating a personalized, comprehensive financial plan. Adam received a degree in Financial Planning from the Marriott School of Management, ranked 5th in the nation for undergraduate business programs by Business Week.

Collection of Articles On Personal Finance (Carnivals):

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Categories : Budgeting, Debt Management, Personal finance

Comments

2 Responses to “Budgeting For Your Financial Goal: That Illusive “Other” Category”

oneadvice says:

September 17, 2009 at 20:50

Fantastic post… Budgeting always makes sense. And if you budget wisely then there is no harm in splashing out every so often!