When they think of unexpected expenses, most people think of repairs from a car accident, repairs from a leaking roof, or medical bills from an injury. And many people who haven’t experienced these things think that they don’t need to worry about having an emergency fund because frankly, they’re just cautious people. But if you look at your budget and your past expenses, you’ll find that there are always unexpected expenses popping up, even if they aren’t huge like replacing a roof.
Things like gifts, special occasions, school and activity fees, and pet emergencies can all sneak up on you and leave you frantically trying to shift your budget around to cover the cost. To avoid the stress and, worse, having to charge the expense to a credit card, use these tips to plan for unexpected expenses.
Create a $1000 Emergency Fund
Everybody should have an emergency fund to cover unexpected expenses, and $1000 is a good starting point. While this may seem excessive to some, especially the cautious I mentioned above, you can’t control things like the weather, or the diseases or death of family members and friends who live afar. If you find yourself having to miss work and travel for a funeral, this fund can save you financially. If a tree falls on your roof, this fund can help.
It’s important that this fund is not easily accessible so you aren’t tempted to touch it for unnecessary items. Set it up in a secure savings account that can’t be accessed with a debit card or ATM.
Review your previous year’s expenses
Maybe you already have an idea of what’s ahead. Perhaps you live in an area prone to flooding, or severe snowstorms. This can give you an idea of what kind of unplanned expenses may come your way, maybe in the form of snow tires or disaster restoration services. Maybe you realize that four of your family members have birthdays in June and all threw parties that you were expected to attend. You can plan to spend extra money that month on gifts.
Start creating space in your budget for these items. You never really know how much damage or repairs you will need, which is where your emergency fund can kick in if the amount you allotted in your budget for these items is not enough. Set aside money for holidays and birthdays, and a little extra for work parties or other events that will probably pop up.
Expect the worst, or at least that something will come up
It’s best to just kick that “it won’t happen to me” attitude right out of your head, because it can, and it will. You can’t control how other drivers will act, you can’t control if your children’s classmates come to school with strep throat, or if your dog chases and eats a bee and, surprise, is allergic.
At some point, your car will need maintenance. You will get sick. An appliance will require repairs. Make a list for each family member (including pets) or aspect of your life. Some categories can include home repair, car repair, missing work, medical bills, vet bills, etc. Figure out how much you can allot monthly to each category. Then if an emergency comes up in one category but not another, you can dip from the others without having to use the money for bills or groceries.
Fix your credit
Lastly, make sure your credit score and history will work for you if you do need a personal loan or another form of borrowed money to cover a significant unexpected expense. When it rains, it pours (or so they say), so after you’ve used your emergency fund it may be necessary to borrow mother rather than risk getting stranded or worse. So fix your credit to make sure that unexpected expenses don’t set you back more than they have to.
Skip the cart
Shopping carts are big and getting bigger. Seriously. If it’s just a habit to grab a cart when you go shopping, opt for a basket instead. You won’t be able to fit as much and your arm will get tired, so you’ll naturally shop and spend less. This will help you stick to your list and avoid impulse shopping, so skip the cart and reach for a basket or your own arms instead.
These tips can help you gain control of your finances and rein in your spending.