How to Plan For Unexpected Expenses
How is this year going for you financially? Are you running into unexpected expenses left and right?
I think it’s Murphy’s law that says “Anything that can go wrong will go wrong” and it’s so true!
It’s just a matter of time before something happens. The engine blows on your car right around the time you just got a huge medical bill. Your refrigerator is on the fritz, your dryer just doesn’t dry well anymore or your water heater just blew and flooded your basement (that’s exactly what just happened to me!).
I went down to the basement the other day and noticed water everywhere! I was not happy. Not only did I now have to spend hours sucking up water and cleaning but I now have a huge expense I have to deal with (water heaters are not cheap!).
Now I say “unexpected” but most of these things should actually be expected (with some exceptions).
We all are going to run into unexpected expenses and being prepared is what turns an unexpected expense from an emergency into just a nuisance.
In my case, my water heater was 10 years old and pretty much at the end of its life. I should have probably replaced it sooner but I really wasn’t thinking about it and who wants to spend the money right?
If I planned to replace it sooner I probably could have set aside money just for that purpose and not have had to dig into my emergency fund, deal with a flooded basement and spend days calling plumbers and getting quotes.
When things like this happen you want to be prepared as much as you can and there are a few different ways to do this.
If you’re already experiencing an unexpected expense I have some tips for you too so keep on reading!
So how do you plan for unexpected expenses?
Being prepared for these types of expenses as much as you can is your best bet when life throws you a financial curve ball. And believe me, it will!
There are two strategies that will help you conquer these “unexpected expenses”.
Do your best to anticipate upcoming expenses (within reason). Like I mentioned with my water heater if I would have just planned a little better I would have avoided an emergency.
Same goes for cars, appliances and pretty much everything! Everything has a lifespan and keeping track of it is key to being prepared.
Driving an older car? Has your refrigerator seen better days? Start saving up to replace them! We all want our stuff to last forever but they won’t, so being prepared is important.
Start by making a list of all your stuff, their ages, warranties etc and start to plan out replacements. Keep reading, I created a FREE Printable to help you with this!
Making a list will also give you the chance to research and keep an eye out for good deals on the replacement items. If you know you’re going to need a new refrigerator or computer then start to do the research now. Get to know the cost and make sure you have enough to cover it.
It’s also good to have all warranties listed and easily found for when you need them! If something breaks during the warranty then you may be able to replace it for free.
It’s also a good idea to keep receipts for large purchases and pay for them with a credit card that gives you extra purchase protection for free. I know Discover card offers a free extended warranty on a lot of purchases!
When an emergency happens or something breaks we tend to just run out and grab a new one at any cost. We do this because we “need” a new one right away. Who wants to go a week without hot water so they can wait for a sale or do research?
If your car breaks are you going to take the bus for a couple weeks while you negotiate deals? Most people won’t and end up spending way too much money just so they won’t be inconvenienced by the “emergency”.
Have an Emergency Fund
Another important strategy is to have an emergency savings fund. Set up a savings account and add to it monthly. Use it only for unexpected expenses or emergencies. Make sure you know what’s in the account. And once you have to take money out of it replace it as quickly as possible.
A good rule of thumb is to have 3 to 6 months of expenses in your emergency fund. This should cover anything from a broken water heater to a job loss. But if you don’t have anything in it now or if you’re just starting out, $1000 is a good goal to strive for.
I wrote an article on how to build an emergency fund that you may also want to check out. It gives you tips to get started on building your emergency fund fast!
Having an emergency fund takes a situation such as a transmission blowing from being a complete disaster to being just a minor hit to your finances because you prepared for it.
There is no worse feeling than not having the money to cover an unexpected expense. If you have an emergency fund and you’re prepared for items breaking and having to be replaced then you are ahead of the game!
How to Recover Quickly After an Emergency
Go over your budget (you have one of those, right? If not check out how to create an effective budget) and look to see if you can temporarily cut back on some things until you can build your emergency savings fund back up.
For example, stop ordering Pizza every Friday night and make your own at home. Skip a night out on the town and watch a couple of movies on Netflix instead of going to the theater. Make your own coffee or bring lunch a few days a week.
Use the money you’re not spending for the next few months to build your emergency fund back up. For an extra boost, work a few hours of overtime, do a few freelance projects or temporarily pick up a part-time job to get back on track fast.
So What Do You Do If You’re Not Prepared and Don’t Have an Emergency Fund?
Take a deep breath and assess the situation. Can you make do without the item for a little while? Just long enough to scrape together the funds to repair or replace it.
If it’s the dishwasher, that’s easy. You can wash dishes by hand for a little while. If it’s the fridge or the car you rely on to get you to work each day, that’s a different story.
If you need the item that broke, evaluate if it would be less expensive to repair than replace. Even if it isn’t the perfect solution, it may get you to work until you can save up for a different car etc.
Check your warranties! Does the item have a warranty? Did you use your credit card to pay for it? If so do you get a warranty on that purchase? These are important things to check first!
If there are no other options, charge it to a credit card if you have one and get to work. If it’s an item such as an appliance you may be able to sign up for a store card or do a 0% finance payment plan. This will give you time to get it paid off without incurring interest.
I know Home Depot and Lowes usually do 6 months no interest and give you a discount or coupon for signing up for their credit card when you make a purchase. If you do this just try and put any extra money towards the bill and get it paid off BEFORE the 6 months ends to avoid interest.
You may also want to check your local area for people who may be selling what you need. Apps like OfferUp and Facebook Marketplace offer tons of stuff locally and you can find a great deal on almost everything. You will be surprised at what other people are getting rid of including new items that they bought and couldn’t return.
Once your bills and credit cards are paid off, do what you can to get that emergency fund set up. Because you know something else will break down the road.
To help you get prepared I created warranty printables so you can keep track of things like your car, appliances and other items. You want to write down your items, any warranties they have and their life expectancies. I also suggest getting prices and quotes and writing those down for any items that are getting close to their life expectancies.