It was one of those minor life events that put a spotlight on a big financial issue.
I’m the type to stay on top of household spending, but when my daughter started preschool, my system went haywire. I combed through our bag of receipts and discovered that the birthday parties my 3-year-old socialista was attending had elevated Toys ‘R Us to line-item status.
You wouldn’t think a few Legos could add up to much, but when I totaled up all the birthdays, I discovered we were blowing close to $200 a month—an extra $2,400 a year—on tiny people who would probably be just as happy with a $2.99 Elmo balloon.
Should I have anticipated the swelling of the birthday party budget? Probably. But like many people, I have a tendency to treat some expenses as off the radar—i.e., viewing the “sudden” need to repair the car or buy a wedding gift as isolated events, even though they’re not, says Abigail B. Sussman, a co-author of a new study on how people handle surprise expenses.
You (and I) pay a price for underestimating the true cost of life’s “knowable unknowns,” Sussman’s study found. You fail to admit—or plan—for how much they can add up to over the course of a year. Worse, says Sussman: “You spend more than you would if you understood how often these ‘exceptions’ arise.” Why?
It's easy to figure out how this happens. Your TV dies and you think, Why not upgrade? It’s only a once-in-a-while expenditure. But so is a car repair, tickets to a hot play when your sister visits, and a splurge facial after a rough week. Not only do those “what the heck” purchases add up, you often pay a premium for being spontaneous and buying on the fly (“Orchestra seats instead of waiting in line for the half-price seats...why not!”).
But when you acknowledge in advance that the sofa has lost a couple of springs or the shower stall is cracked and needs replacing, you can plan ahead (maybe even save) to get the best price for those items or services.
In fact, once I admitted to myself how much birthday money went out every month, I poked around for other knowable unknowns and found quite a few (the four-times-a-year window washers, for instance). So I added up how much all our “extras” come to over the course of a year—north of $5,000, shockingly—and I created a new account that I dubbed “surprises.”
Although I was appalled at first—where was this money going to magically appear from?—I quickly realized that most of it was already there. We'd been spending it all along without realizing it. But at least now those amounts are right there in the open in my budget, with $500 earmarked for the unsurprising surprises each month.
I’ve also trimmed what we spend on kid gifts, but no, I’m not such a cheapskate that I’m handing out Elmo balloons as presents.