Sizing the Irregular-Bills Fund: A Percentile Rule for Monthly Set-Asides Against Lumpy Annual Costs

Most household budgets are monthly, but a large class of costs is not: insurance premiums, vehicle expenses, school costs and repairs arrive a few times a year in amounts that dwarf a month's slack. This paper simulates 30,000 household-years of nine irregular bills (median USD 260 each; mean annual total USD 3228.30) and asks how a fixed monthly set-aside should be sized. Setting aside exactly the mean annual total divided by twelve still leaves 80.8% of years containing a month in which a due bill exceeds the fund, because bills arrive before the fund has filled. The proposed rule — set aside the 90th percentile of the annual total divided by twelve, USD 378.96 a month — reduces shortfall years to 55.0%. An initial float is the cheaper fix for the timing problem alone: USD 500 of float at the mean-based set-aside cuts shortfall years to 52.4%. The study is simulated, not measured. SIMULATED, NOT MEASURED.