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Budgeting for Unexpected Expenses

budgeting for unexpected expenses

Planning and budgeting for the expenses that happen every month is typically simple and straightforward. But what about budgeting for Unexpected expenses? You know, the ones that creep up, seemingly without warning? Things like an accident, medical expenses or new tires for your car? We all have an idea of the amount we pay for our mortgage, rent, car payment, auto insurance, etc. We can usually estimate our total grocery expenditures and know roughly what to expect on our utility bills too. What many of us fail to do well, is budgeting for unexpected expenses.

There’s a difference between budgeting for unexpected expenses and budgeting for irregular expenses. To deal with irregular expenses, it’s important to have an effective plan in place. You can do that by setting aside money for them to avoid a cash flow crisis. If it’s an expense you know is coming (like a tax or auto insurance bill) then you can break the amount into monthly chunks and set that amount aside to pay when the bill comes. For example: You have an auto insurance bill that comes every six months and it costs about $650. To be prepared for this expense you should be setting aside $108.33 every month into a fund for your auto insurance. If you do this faithfully you will never have to worry about paying that bill when it arrives.

But what about unexpected expenses?  We know that life happens. Accidents happen, medical needs come up and things break down. What happens when you have one of these irregular expenses and you don’t have a plan in your budget to meet it?

To pay for unexpected expenses, you have a couple of options:

  • Pay with a credit card
  • Work out a payment plan
  • Borrow from a friend or family member
  • Use your emergency fund – the best choice by a landslide!

Budgeting for unexpected expenses is best accomplished by budgeting to fund your emergency fund. An emergency fund is your ticket to staying out of debt. Most people don’t accumulate debt by living large and spending irresponsibly. Unexpected expenses are the common culprit for taking on debt. If you have a cushion of money stashed away for those things that come along unexpectedly, it’s less likely that you will accumulate debt OR the stress that comes along with debt.

Not sure where to start? Set a goal for the year that seems manageable: $1200 is a nice even figure. If you look carefully in your budget chances are you can find items that can be cut that will allow you to set aside $100 a month ($25 a week) in a fund that you do not touch unless there is an emergency. If you have to withdraw money from that account for a true emergency, you simply pay that money back to yourself as quickly as possible so your emergency fund isn’t depleted. And by the way, a shoe sale or your child begging for a new video game is NOT an emergency!

An emergency fund is a part of a secure financial future. Don’t fall into the temptation to believe that if you can’t save a large sum, you can’t save anything. When it comes to savings, every bit you save is better than nothing at all. So what are you waiting for? Get started on that emergency fund today!

The CESI Team is committed to helping you reach your financial goals. If debt keeps you from living the life you dream of, contact us for a free debt analysis today and get started on the road to a brighter future!

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