Unexpected expenses are a royal pain in the ass aren’t they?
They creep up on you as if from nowhere and hit you right in the loins.
Too many times I’ve hit car troubles when I really can’t afford it, and they always seem to be big problems that cost a small fortune.
Even if you’re budgeting your finances, because you should be, there are so many unexpected expenses that you just can’t plan for, and at the end of the day or incomes can only stretch so far. You simply can’t plan for everything. Or can you?
Planning for unexpected expenses
In reality, we should expect the unexpected. If you own a car it’s a foregone conclusion that at some point you may have a problem with general wear and tear, repairs and servicing. This one of the most common unexpected expenses that we’ve probably all experienced.
If you have kids, chances are you’re going to have to run to the emergency doctors because someone got their fingers trapped in a door or cut their chin open when they fell off their bike. All us parents have been there, right?
These things should be planned for.
In order to cover these rare moments of grief in our lives we should build up a cushion of cash in a savings account.
Now most of you who follow my posts will think that I might be talking about an emergency fund right now. Well, I’m not!
I’m talking about a buffer of cash for the expected, unexpected expenses.
What’s the difference you may ask?
I’ll explain an emergency fund in just a second, but consider this for now.
There are some life circumstances that can reasonably be expected to happen at some point. Your car breaking down or needing some kind of repair is one of those. House repairs may be another, maybe even a small budget for clothes because your kids are growing up so fast, or school trips and even the need to buy a new washing machine if it breaks.
These are expected expenses but aren’t necessarily in your family budget because if you had them in there it would look all of a bit crazy and would become unmanageable.
For these types of unexpected expenses you should create a buffer of cash inside a savings account.
My Mum would call this a rainy day fund and whilst it’s a little similar to an emergency fund it’s stored in the bank, earning interest and added too each month from a small percentage of your wage and never touched until something outside your budget that doesn’t constitute as an emergency crops up.
If you want to know if it’s an emergency then there are 3 simple questions you can ask yourself. If you find yourself answering no to any one of these then you take the money you need from your savings or buffer account.
An emergency fund
Now for the truly unexpected expenses you should have an emergency fund. These are funds purely for incidents that come out of nowhere and you need immediate access to some cash. A trip to the emergency room would be one such expense, losing your job would be another.
An emergency fund should be anywhere between a $1000 and up to 6 months of your salary to cover a broad range of unexpected circumstances. $1000 would cover a trip to the doctors but it isn’t going to cover your mortgage and put food on the table if you lose your job and struggle to find work.
These unexpected expenses are the curve balls in life that you just don’t see coming and more often than not are things that you need immediate access to cash for.
Dealing with unexpected expenses
By dealing with unexpected expenses in this way you will reduce the amount of stress you will feel when the proverbial shit hits the fan.
It happens to us all at some point and I dare to suggest that you know exactly what it feels like to not have the cash you need to hand to pay for something and it either hits your food budget or your holiday fund or, worse still, you end up sticking the expense on a credit card, taking out a pay day loan or drawing down from your mortgage.
You want to avoid that at all costs. Get into good habits and save for the unexpected.
By building up an emergency fund and an “unexpected expenses” savings buffer, or rainy day fund, you’ll avoid the possibility of falling into debt and a shed load of stress to go with it.
What do you think? Are there any other ways you’ve found to deal with unexpected expenses that would be useful for people to know?