9 Unexpected Expenses You Need to Plan For
Life happens. In the blink of an eye, your paycheck yesterday could be spent towards a medical emergency tomorrow. It’s prudent to say that we should always anticipate the unexpected, but without concrete actions and actual preparations, you’ll always be caught off-guard.
You plan for most things in life. You prepared to ace the interview for the job you have right now. You’ve planned your wedding to the littlest detail. You even made a checklist for that vacation you’ve been so excited about. But what about the emergencies like a trip to the ER, an urgent dental procedure or home repair? Yes, you need to plan for them as well to maintain the normalcy of life.
The Importance of Saving
This is where the importance of saving comes in. You save for major things in life like retirement and college education. However, sometimes we overlook the little things simply because these expenses don’t occur regularly. But guess what, they do occur! At one point or another, you need to get that bad tooth extracted or replace the old worn out tires of your car. As soon as you recover from the initial shock comes in the realization that you need money to deal with them.
Here’s the best and only thing that you need to do to deal with unexpected expenses: save for them.
Make an Emergency Fund
People call them the emergency fund. This specific fund is not like your college fund or retirement fund. You plan for things like those. An emergency fund is your financial buffer for when emergencies strike. You don’t have to pull out some money from your home equity or borrow against your retirement savings just so you could get new tires. You will get them from your emergency fund.
And if you happen to be one of those people who have zero to little money stashed for emergencies, it’s about time you do about it. Saving for emergencies doesn’t have to be a one-time thing. You can start by setting aside even a small portion of your income consistently and regularly towards your emergency fund. If you ever need to touch this fund in the event of an emergency, strive to replenish it. You should aim to save at least three months worth of your expenses, but if you have dependents, go for six months or more.
Now, here’s a list of unexpected expenses you need to expect, and the best ways to save for them.
Most Common Unexpected Expenses
Car ownership costs some money. In between the auto loan, insurance and parking fees and tolls, you need to expect car repair bills will come into the picture at one point or another. According to the data from AAA, the average car repair cost falls between $500-$600. Sadly, 1 of 3 car owners resort to debt just to afford the bill.
Compounding to the already costly car repair bill is the fact that many drivers postpone routine car maintenance, which worsen vehicle condition over time. And the graver the condition, the more expensive the car repair cost becomes.
AAA’s Automotive Engineering and Repair director John Nielsen says “while it may seem that skipping maintenance and repairs can save money in the short term, staying on top of car care can save drivers hundreds of dollars in the long run.” It’s often easier and less expensive to prevent future issues than correct them when they occur.
The thing is, cars lose some of its optimal performance, thanks to wear and tear. Over the years and throughout the miles, your car will require you to shell out some money down the road, whether it’s for routine maintenance checks, oil changes and so on. However, you need to prepare for urgent car repairs and save up for it.
To save even further from repair costs, make sure to consult your car’s manual for the recommended schedule of maintenance, and try to stick to this schedule. It’s also best to shop around repair shops and find a trusted mechanic and get a written quote for the repairs and their costs.
Even the healthiest people do get sick sometimes, and in some cases, health insurance won’t offer enough coverage. Also, medical attention is not just for those who are sick, but also those who are involved in accidents and injuries. What if you wake up one day on a hospital bed with bandaged head and legs?
Health insurance is important and necessary, whether or not you’re at the pink of health. But a trip to the ER can cost you back by several hundred to a few thousand, but that’s often excluding other services like lab tests and procedures. If you need to spend a couple of days to recuperate, then expect for the bill to shoot up. Hopefully, your insurance is enough to cover all these, but what if it doesn’t?
You need to save up some money for medical bills, so you can have accessible money for out-of-the-pocket medical expenses. According to the Federal Reserve, 24% of the Americans went through a huge unexpected medical spending for the past year that they needed to pay out of the pocket. Additionally, Harvard Medical and Law School says that medical conditions and huge medical bills were responsible for approximately 62% of personal bankruptcies.
Medical bills can drain the budget quickly. Yet, this is an expense you can’t afford to neglect. Don’t depend on your health insurance alone. Make sure to set aside some money for future medical bills, so that you wouldn’t have to wait until you’ve had enough cash just to go through a surgery or buy medications for your condition. Also remember that you need to be healthy to keep making an income, and investing on your health makes so much sense.
You probably already know that you need to pay the government taxes at various times of the year, and not just on tax season. But because taxes don’t appear on your monthly budget, they tend to get overlooked. Come in quarterly filing and you have a tax bill that you need to pay but failed to save up for.
The best thing that you can do is to anticipate taxes on a quarterly basis but figure them out in your monthly budget. For most business owners, self-employed and freelancers, how much they pay on taxes depends on how much they earn, which is also unpredictable. This unpredictability makes saving up for taxes a bit more challenging.
The general rule of the thumb is to save at least 20-30% of your earnings each month for tax purposes. There may be months when you earn more, so you will also be paying more in taxes. However, take this as an opportunity to step up your savings. It’s definitely safer to save more than less.
Seasonal utility bills
You expect to pay utility bills each month, but when seasons transition from warm to cold and vice versa, you’ll notice a stark difference on your monthly bills. Sometimes, the difference is a huge as several hundred dollars, which sometimes, you fail to note in your budget.
Your utility bills depend largely on your location and how forgiving you are with your thermostat. You need to feel warm when it’s cold and feel cool when it’s too hot. With that said, you should expect for bills to change at least every few months. Also, you need to take into account that it’s better to be more generous than conservative with your utilities budget, least you don’t have to scrimp up more money should the bill comes out larger than you expect.
Another way to anticipate the fluctuating amounts of your utility bill is to compute the average. Take hold of your bills for the past year or two, sum them all up together then take the average. If the current month’s bill is lesser than the average, use the excess money to add to your next month’s bill and so on. Or, you could throw any extra dollars towards a sinking fund which you can tap into should you encounter some months when bills go outrageously high.
Finally, consider cutting utility bills down through bringing the thermostat by five degrees lower or higher. Compensate by wearing cooler, thinner clothes during the summer, and then bundle up with a few layers of clothing or thick blanket on winter.
Also try to cut showering time, reduce the frequency of showers and use rainwater for carwashes. If you can, switch to energy-efficient appliances, opt for tankless water system and low-flow showerheads. These may cost you some money upfront, but they’re also likely to bring your utility bills down for the coming years.
Once you become a homeowner, you also shoulder the costs of home insurance, mortgage, and homeowner’s association fees, and many things else in between. But it doesn’t end there. Time will come when you’ll need a new roof, replace old and worn down appliances as well as repair and maintain your heating and cooling units. Often, these come at the most unfortunate events. For instance, you may need to replace or repair your floors after a recent flooding, or it may be better to replace your old roof after a typhoon hit your area.
Even your beloved dishwasher, washing machine, and refrigerator that have served you several years come to a point when the wear and tear is beyond salvation. All of these and more will cost you a lot of money if you’re not well prepared for them.
It’s very essential to factor in urgent home repairs to your emergency fund. If not, consider establishing a sinking fund meant for home repairs and improvement. Most of these repairs need timely attention to keep your home running smoothly, as well as ensure the safety of your family members.
Without a budget for home repairs, it’s easy to make hasty decisions that can cost you so much more in the long run. You might try to charge the repairs to your credit card or take out another loan. While these are handy options, they should never be the first ones. You first line of defense should be some liquidity in your savings account that you can access anytime you need it.
Consider tucking away 1% of your home’s value and save that amount for yearly home repairs. So if your home costs $300,000, you should have at least $3,000 in savings. If the home is older, consider saving up even more. Also, it pays to consult your home’s maintenance schedule so you know exactly when the last repairs had been and when to anticipate the next ones.
Car insurance premiums
As a car owner, you can readily expect certain expenses such as gas, toll fees, parking, and car repairs and maintenance. But since car insurance premiums aren’t paid on the monthly basis, many car owners are still shocked by this seemingly expense.
Car insurance is typically paid twice a year, so it’s often easy to overlook and forget about them. Most of the insurance companies offer discounts when you pay for the premiums in bulk of six months, which in essence, make it easier and more convenient for you.
However, do take your time shopping around insurance policies offered by various insurers before deciding on one. In fact, you can take advantage of different packages, such as insuring more than one vehicle and/or drivers, to bring your premiums down. Additionally, you should strive to drive carefully because violations and accidents are recorded. The more you have of those, the higher your premiums become.
All of us are excited for trips and vacations. Planning these trips in advance save you serious money and a great deal of stress. Unfortunately, you can’t plan all of these trips, especially when you need to travel at the last minute. Some trips like your best friend’s surprise wedding or attending to a severely sick family member may require you to fly out of the blue.
How much you spend on unexpected travels depends largely on your destination and how long you’ll be gone. Some airlines lower their fares last minute just to get full flight, but others do not. If you can, try to score the lowest fare you can possibly find. Not only that, you also need to factor in food and accommodation into your trip. It helps if you can stay with family to eliminate the cost of hotel room and possibly reduce your food expenses. Otherwise, you need to have some money to spend while you’re away.
It’s important to stash some money for unexpected travels like these so that the next time you need to go on a trip somewhere on short notice, you can just pack your bags and go.
Most parents know that having and raising kids is expensive, but they’re still taken aback by how demanding it is to raise children nowadays.
According to USA Today, raising a child now costs $233, 610. This covers from birth to legal age of 18. That should be of no surprise, particularly now that new parents are faced with a multitude of economic pressures. First-time parents in particular, should anticipate costs left and right – from doctor’s visits, dressing up the nursery, vaccinations and an increase on utility bills and many more in between.
It seems that the costs just add up more as the child grows. Daycare, for instance, is a major expense many parents face. Then there are new clothes and toys, sports and lessons.
Still, starting and expanding your family is a significant milestone, but one that you shouldn’t go without a plan. First, you need to have enough, if not more, money in your emergency fund to cater to the surprises of the pregnancy and childbirth. Many mothers have childbirth experiences that were far from what they imagined and financially prepared for. One minute she could go for a vaginal delivery, only to be told that she needs a C-section.
Next, you need to prepare your time off work to care for the newborn. Your maternity benefits can provide some cushion, but only until the time you’ve filed for the leave. But what if you decided you wanted to take the whole year off? Your finances could mess up your finances without the other income coming in for some time.
And then consider all the other nasty expenses that are easy to overlook, such as opting for convenience food over home-cooked meals (it can be hard to put up a decent meal when your baby just refuses to be put down). Over time, you may need to extend your home or get a bigger home, choose in between schools, pay more for vacations, gifts, and technology.
Adding a new member to the family represents a financial strain that could go on for years, but it shouldn’t be as stressful as you think if you’re well-prepared for it, financially, physically and mentally.
Losing your job
Life’s curveballs are always unexpected, and one of the major hits one can take is job loss. Losing your job means losing the stream of income that sustains you and your family’s lifestyle. Most events of job loss can be well outside your control. If your company is downsizing, you could be one of the unfortunate employees to get laid off. In some cases, loss of employment could be a choice you make, such as when you’re abruptly changing careers but failing to get a new employment right away.
Losing your job can be financially and emotionally stressing. And the only way to deal with it is to ensure that you have enough to tide you over until you’re able to secure the next employment opportunity.
For this reason, it is important to build an emergency fund which will sustain you while you try to figure things out. Ideally, you should have at least three months’ worth of expenses. However, it would give you more peace of mind if you strive to save up more, as you would incur other expenses while jobless. What if you got sick or your car’s tires go busted while you’re unemployed? These things will further complicate your financial situation.
FINRA suggests that you need to reduce spending while out of the workforce. You need to maximize all the financial resources you currently have, so make sure to spend as wisely as possible. It is also important to take inventory of your finances and then develop a new budget that fits the current situation. Also, try to claim unemployment insurance if that’s possible. Every little help can go a long way as you try to sort out your situation.
Strive to find employment as soon as you can so you can be back on your feet. Don’t forget to replenish your emergency fund as well.
A lot of things in life can catch you by surprise. While the initial reaction would be that of fear, panic, and stress, you can get by, stay afloat and lead a pretty normal life by being prepared. With that said, we can’t emphasize how important it is to expect the unexpected.
Cary Silverman is a consummate entrepreneur having sold multiple companies during his 20 years of business experience in the financial industry, but for him, it isn’t about the money. His success is rooted in his passion to focus on doing something better today than it was done yesterday. These days, he’s the CEO of Waldo General, Inc. that oversees the operation of King of Kash.