S1 E9: 😲 The one thing you're forgetting [Out of the blue expenses]

In this episode of the Money Healing Club podcast, host Rachel Duncan, a financial and art therapist, talks about an often-overlooked type of fixed expense that just might be causing your debt spiral: annual expenses. Building on the previous episode's focus on subscriptions, Rachel explores the concept of 'midterm' expenses. Estimate costs on all these things that usually sneak up on you:

*Car registration

*Car maintenance and repairs

*Parking/traffic tickets

*Pet emergencies

*Home repairs

*Hobby-related costs

*Travel

*Furniture

*Moving

*Tax preparer

*Seasonal recreation: Parks pass, kids camps, classes

*Medical and dental deductible

*non-monthly utilities

Dedicate a midterm savings account for these costs that is separate from an emergency fun and other long/term accounts. Name this account something meaningful: Out-of-the blue costs, annual fun, no surprises fund... whatever is meaningful for you.

Add them up and divide by 12. Set an auto transfer of this amount from checking to this special savings. Now you have a list of the inevitable, but surprising costs you're saving for!

This episode provides practical steps for calculating and setting aside funds regularly to avoid falling into a debt cycle. Rachel also highlights the importance of balancing necessary costs with quality-of-life expenses to create a realistic financial plan.

00:00 Introduction to the Money Healing Club

00:37 Understanding Annual Fixed Expenses

01:33 Examples of Midterm Expenses

03:20 Creating a Midterm Savings Account

03:47 Comprehensive List of Annual Expenses

06:59 Budgeting for Quality of Life

08:35 Conclusion and Next Steps

Your next listen: S1 E8: Subscriptions: too easy to ignore https://www.moneyhealingclub.com/podcast/s1e7-2yr7d

Leave us a voicemail: What cost feels out of the blue for you and throws you off? Click on the big orange button on our site right from your phone or browser and let me know! https://www.moneyhealingclub.com/podcast

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Full transcript can be found here: https://www.moneyhealingclub.com/podcast

• Read The Transcript Here

  -Music-

  Welcome to the Money Healing Club podcast. I'm your host, Rachel Duncan. I'm a financial therapist and art therapist, and you've come to the softest place to land in personal finance. This podcast is for education and entertainment purposes only. For help with your particular situation, please seek help from a licensed professional in mental health, taxes, and finance.

  Here, we talk about all the things we don't usually say when we talk about money. Let's begin.

  -Music-

  Today on the podcast, I want to talk about the one type of expense you may not be considering when you're sitting down to try to get organized about your money. In the last episode, we talked about subscriptions with some ways to identify subscriptions as a way to sort of get started in reducing your fixed expenses.

  But today I want to talk about another category of fixed expenses that we often overlook. That is annual fixed expenses. The reason I bring this up is a lot of folks come to me and they have tried to get a handle on their monthly expenses, their discretionary spending, and maybe they're carrying debt and they're trying to pay off the debt, but they keep getting into the debt cycle.

  What I find is we don't usually consider the annual costs that aren't quite emergencies, but also aren't predictable. And they aren't like a utility bill that are going to happen no matter what. Let me give you a few examples.

  Do you find it so startling when your car registration comes due every year and it's usually a, you know, two to $800 expense?

  What about a pet emergency? Spot, gets into the pantry, and it's a $2,000 emergency surgery.

  Or you need to buy a new mattress or your car needs breaks. See, all of these things are important, somewhat mundane things that are going to happen in the year. And with the exception of the car registration, you don't know when they're going to happen, but they will. So what I find is when folks aren't accounting for these sort of Midterm expenses.

  That's what gets them into the debt cycle.

  So I'm going to back up a little bit and share how I talk about these midterm fixed expenses in the money healing club.

  First, let's just brain dump all the ways we can describe these things.

  We could call them important, but not emergencies.

  Sinking funds, meaning like, say you always want to have a thousand dollars saved for a car emergency. That would be a sinking fund. You add to it throughout the year and then you can pull from it in big chunks.

  Periodic expenses, meaning like the period is not a month but a year, something that happens somewhat annually.

  Annual surprises.

  Curveball expenses.

  I like calling them out of the blue expenses because they often feel out of the blue in the moment. But if you back up, Oh, there's something major that I need to do to the car every year.

  So I've got a list. I'm going to rattle all of these off for you. You can jot these down. I'll also put them in the show notes. I want you to consider each one of these expenses as something that you need to save for in its own midterm savings account, something that you will put into and pull out of pretty regularly. So it's a really different type of savings account than, say, like an emergency fund that you're going to build and build and build slowly.

  This is a very different type of savings account that might be with your same bank that you have checking, so it's sort of easy back and forth.

  so here's a list that I've developed with the help of other members in the club in our group calls.

  We have annual car registration,

  car repairs and maintenance,

  Meeting your medical deductible,

  home repairs,

  furniture,

  pet emergency,

  dental & vision that isn't covered by insurance,

  vacation and travel. Hey, if you want to save for vacation, that's sort of an annual expense, isn't it?

  Certain utilities that are not paid monthly. For example, where I live, we pay the stormwater fee quarterly instead of monthly. So it often surprises me.

  Gifts. Now those happen throughout the year.

  Seasonal expenses like a pool fee, a ski pass, getting camps for your kids, parks passes. Hobbies. Do you join a choir one season a year? Do you take gardening classes? Do you do more festivals and concerts in the summer? So that's sort of like a once a year type of expense.

  Other expensive seasonal items like clothing or gear that's tied to either where you live or a hobby or sport that you're really into.

  Hey, have you budgeted for your annual parking or traffic ticket? Put it in there.

  Any extra education, coaching, or courses? Maybe you want to level up your career or you just enjoy learning about things on the side. If that's something you enjoy putting your money into and that's important, let's budget for it.

  Paying someone to help you with your taxes, if that's something you do,

  and moving.

  Now these are just a handful of examples, but I do find this list covers a lot of bases and helps us think about some of these annual kind of higher ticket things that are harder to plan for, but absolutely happen every year.

  So if you were to estimate, put some money behind each one of these, you're going to get an annual number. It will probably be in the five figures if you really sit down to look at it, maybe even more. So you take that total amount and you divide it by 12. That is going to give you the amount that ideally you'd be transferring from your checking to your savings every month for your out of the blue expenses.

  You're also going to keep this list handy. These are the reasons, these are the key reasons. Conditions. I will let myself use this particular savings account, right? It's not quite an emergency, but it's pretty darn important. You're saving for an emergency fund would be in a separate account. I would recommend a separate bank to kind of add that friction.

  That's the kind of true emergency account that you would use if you lost your job or you needed to leave a toxic situation or a global pandemic or something else, a real true emergency where you don't have income.

  So check out my list in the show notes, please let me know what I've missed. What annual expense do you have that always throws you off guard, that just blows the budget and it might send you into a debt spiral.

  My hope for you is you get a realistic picture of what your good life costs. Yes, there's things that are unavoidable, like car registration and things like that. But Hey, do you want to put a little more money into your hobbies? Would that be good for your life? I don't want you to go through this list and cut out everything like all vacation or all gifting.

  That type of restriction just doesn't last long, especially if you're used to doing those things.

  And wouldn't it feel good when you come up on your next trip for you to have that money in an account instead of adding to your credit card balance.

  I know this episode was more of the nuts and bolts than the emotional stuff, but it's so important to talk about. I hope you can integrate this more forward thinking into the out of the blue expenses that might catch you off guard and instead do your future self a favor and plan for them now.

  As you identify some of these quality of life expenses that are important to you, it can be kind of a good decision making tool. For example, would I rather have that beautiful sundress right now? Or would I rather take that gardening class next week?

  Would I rather go to that concert with my friends? Or go on that trip,? There's no right or wrong answer, but when you have your midterm goals in mind, or even longer term goals, it's a nice point to reflect on some of your more impulsive spending and weigh one or the other.

  And when you're more clear about what your life really costs, it can also help you understand what your income requirements are.

   So thank you for sitting with me in this deep dive into midterm expenses. It's so top of mind because we just finished our get your money organized challenge in the club. We do this quarterly where we meet every day, Monday through Friday to get through a spreadsheet that I handmade for you.

  And one of the tabs goes over these fixed expenses. It's often quite illuminating for people.

  If you want to hear about the next time we run the challenge, head on over to money healing club. com and get on our email list. You'll hear about all the goodies.

  -Music-

  Thanks for listening to the Money Healing Club podcast. You can find resources and links from this episode in the show notes at moneyhealingclub.com/podcast. If you enjoyed this episode, you'd probably really love my free email course on curbing impulse spending with compassion and mindfulness.

  Check it out at moneyhealingclub.com/challenge. Do you have a question about how financial therapy might help you? Leave me a voicemail at moneyhealingclub. com. And I might answer your question in a future episode of the pod. We are in this together and I really appreciate it.

  -Music-