Photo by 8zil

sand·bag (sndbg)

One of the program managers that I work with likes to hedge his bets by painting a bleaker picture than he should, in order to easily “make his numbers”.  He’s a sandbagger extraordinaire, and I marvel at how he gets away with it.  He’ll forecast his sales with a three-month slip in deliveries, even though he knows that he’s bound to the contractual dates.  He pads his cost estimates on projects, never projecting any savings until the project is over.  He should have theme music playing when he walks to the podium, maybe Led Zeppelin’s “When the Levee Breaks”.  The accountants hate him, and I always take his forecasts with a grain of salt.  In his world, the buzzards are always circling overhead, and there is no upside.  He errs on the side of caution.  If he ever loses his job, there’s a levee somewhere that could use his expertise.

Uhh, where did I put those sandbags?

Actually, he may have a point.  What if we apply this concept to our personal budgets?  You know, when we project next year’s expenses.  Wait, you mean you haven’t done that yet?  I’ve already forecasted two years into the future.  Maybe I’m overzealous, but I like to have my path laid out in front of me.  If you’d like, you can use the budget file that I created in Excel that I talked about in this post: Low Budget.

Time to fill them up

My point is, leaving a little breathing room in your budget is a good thing.  The extra padding that you add to your expenses will cover the little things that we never budget for.  I can think of several examples of unexpected expenses, such as:

• School pictures;
• Magazine subscriptions that you forgot about renewing;
• Fees for school field trips;
• Girl Scout cookie drives at work.

So, how exactly do we accomplish this?  I like to look back at my expenses from year to year.  I’ll calculate the escalation in cost as a percent, and add that to the latest expense amount for that budget item.  For example, let’s look at car insurance.  I’ll look back at my last three years, and come up with an average growth rate in the premiums:

Car Insurance Premiums

• 2006: $2,000
• 2007: $2,100, a 5% growth
• 2008: $2,400, a 14.3% growth
• 2009: $2,500, a 4.2% growth

I can take the average growth for the period in question, and add that to the current year’s expense to come up with a number for next year.  In this case, I can just take the increases by year and divide by three.  That would give me 7.8%.  If I wanted to get technical, I could take the $500 increase and divide it by three, and then divide the answer by 2,000, which would give me 8.3%.  Whatever.  I’ll round it to 8%.  It’s close enough for a projection.  That would compute to a $200 increase over the current premium.  Now, I’ll sandbag it by adding another 2%, or $50.  In total, I’ll add 10% onto this year’s premium, or $250.  The extra fifty bucks will either go in my pocket, or pay for some other middling expense that I forgot to budget for.  I’ll use this process for any expense item that varies from year to year.  Any items with fixed payment amounts, like a car loan, wouldn’t get any padding.

By sandbagging your expenses, you’ll create a cushion in your budget for any unexpected items that arise.  And you won’t feel like a cheapskate when Girl Scout cookie season starts at work.

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