How to Budget for Unexpected Expenses?
A unexpected expense can be in the form of your car transmission failure, right when your daughter needs braces. It can also be like your washing machine decides to stop working when you were planning to upgrade your laptop or buy a new air conditioner. All of those are unexpected expenses.
It is just a matter of time before unexpected expenses can occur. They are more common than expected and we have to deal with them throughout life. This post will show you how you can do it efficiently.
Possible Unexpected Expenses
A possible unexpected expense can be related ore a part of one of the following groups.
Home: Maintenance and repair of your home, replacement of furniture or electronics, monthly bills, property taxes, pest control, and cost of relocation in case you decide to move to a new place.
Cars: Car insurance, regular car servicing, maintenance, repairs, tires, car tag, toll fees and traffic tickets.
Kids: Picnic, field trips, birthday gifts, school supplies and extracurricular activities.
Health: Doctor’s visits, surgeries, medicine and prescriptions, new glasses or contacts, braces, pandemic.
Others: Birthday gifts for friends, pet care, annual membership fees, weekend guests, baby shower gifts and wedding travel.
How To Take Care Of The Unexpected Expenses?
When life throws you a financial curveball your best best bet is to be prepared in advance to face it.
Do your best to anticipate the above upcoming expenses. If you’re driving an older car, or your dishwasher has seen its better days, start saving up for the repairs of that item. You should also be ready for permanent replacement if that is needed.
An even better strategy is to create a sinking fund for your emergency needs. Having an emergency savings fund and constantly adding or saving funds to it can be your best strategy. Use it just for completely unexpected expenses. confirm you recognize what’s within the account. And once you have got to require money out of it replace it as quickly as possible.
How To Recover Quickly If You Incur an Unexpected Expense?
This is a practical point to think of if the damages are already done. Know that you can easily recover if the purchase or the blow was not that big by making small changes to your habits. You need to go over your monthly financial budget (you have one of those, right?)and check if you can temporarily cut down on some things. To reduce your budget you can stop ordering pizza every Friday night and instead eat a homemade pizza. Skip a night out and instead choose to watch a movie or a show on Netflix rather than visiting the theatre.
But if the damages are huge then the recovery path will also be difficult and long. Cutting down on small expenditures like coffee, food and snacks can be of little help but along with that, you need to bring in big changes. Keep adding all the saved money to your emergency fund for the next few months. For an extra boost, work overtime, do some freelance projects or get a part-time job temporarily to be back on your track.
Expect the unexpected
The best way to tackle unexpected expenses is to expect them. These expenses can be tackled easily when you have a strong emergency fund as discussed in the financial planning made easy. Instead of tripping on this hurdle, you would jump over it when your financial plan is in place.
The first step to save for unexpected expenses is to expect that those can happen. You cannot improve the situation if you are not prepared for it. Financial planning experts recommend planning on at least 20% of your monthly income for unforeseen costs like these. If you earned $5,000 a month, then put at least $1000 for these unexpected expenses.
Evaluate and identify if it would be more cost-effective to repair the item instead of replacing it. Even if you don't find a perfect solution, repairs on your old car can buy you some time till you set up that sinking fund and be ready to buy the new or different car without disturbing your other expenses. If needed get a car loan. Once you take any loan make it your only goal to straight away pay off that expense quickly.
Once your bills and credit cards are paid off, make sure to set up your emergency fund. Congrats! if you already have it now make sure that you consistently grow it. Because now you are fully aware that something else will break down the road.