Many budgets work well until a large yearly bill arrives. Planning for irregular costs, sometimes called sinking funds, spreads them across the year so they stop causing stress or new borrowing. This guide shows you how to find these costs, work out monthly amounts and set up a simple system.
Step by step
Find every irregular cost
Look back over a year of bank statements and list anything that does not come out monthly. Common examples include car insurance, MOT and servicing, TV licence, annual subscriptions, holidays, Christmas, birthdays and school costs. Add anything you know is coming, such as a boiler service.
Estimate the yearly cost
Write down the amount you paid last time or a realistic estimate for each item. Round up slightly to allow for price rises. Total the list to see the full yearly cost.
Convert to monthly amounts
Divide each yearly cost by twelve, or by the number of months until it is due if it is sooner. This gives you a monthly amount to set aside. Add these to your monthly budget as a regular expense.
Set up separate pots
Use a separate easy-access savings account, or the pots or spaces feature that many banks offer, to hold the money. Some people use one pot for all irregular bills, while others use one per goal. Choose whichever you will keep track of.
Automate the transfers
Set up a standing order on payday so the money moves automatically. Saving before you spend means you are less likely to use the money for something else. Check the pots are growing as expected.
Review and adjust
When a bill is paid, compare the actual cost with your estimate and adjust next year's amount. Review your list every few months for new costs. If you are short, look at whether monthly payments for some costs are available without extra charges.
Ready-to-use checklist
- Twelve months of statements reviewed
- List of irregular costs created
- Yearly total calculated
- Monthly amount for each item worked out
- Separate savings pot or account set up
- Payday standing order created
- Review date set in your calendar
Practical tips
- Paying annually can be cheaper than monthly for things like insurance, which is easier with a pot.
- Label pots clearly so you know what each one is for.
- Keep your emergency fund separate from planned costs.
Common problems
I cannot afford the monthly amounts.
Prioritise essential costs such as insurance and MOT first, and look at reducing or spreading less essential items. Review your budget for other savings.
A bill is due before the pot has built up.
Ask whether you can pay in instalments without extra cost, and cover the gap from the pot as far as possible.
I keep dipping into the pots.
Move them to a separate account without a card, and build a small emergency fund so genuine surprises do not drain planned savings.