Life is full of surprises. Some are good, some are bad, and inevitably some are financial.
Even the savviest budgeter doesn’t anticipate what they can’t see coming. Unexpected expenses just happen sometimes. But not all unforeseen costs are unexpected.
If you have an old furnace, you know you’ll need to replace it soon. Cars require maintenance, especially when they’re not new, so there’s a good chance you’ll be paying maintenance and/or repair bills. Those annual property taxes might sneak up on you and throw your entire budget off.
These costs don’t technically fall under the category of unexpected. While these are unpredictable, they are still expected. The truly unforeseeable costs that pop up are considered unexpected expenses.
Once you know the difference between unexpected, irregular and overlooked expenses, you can figure out how to tackle these costs and plan your savings strategy.
Are Your Expenses Irregular, Overlooked or Unexpected?
Let’s dive into the difference between irregular, overlooked and unexpected expenses.
Maybe you didn’t realize your daughter was going to need braces this month, but based on the dental evidence smiling at you, you knew this was coming.
Expenses like this are considered irregular. These costs don’t happen regularly, but you are fairly certain they will occur at some point.
Most bills are monthly, but there are also annual and semi-annual bills like auto insurance, property taxes, homeowners insurance and life insurance. It’s easy to forget about these as you gather your expenses for your monthly budget.
These bills get overlooked, and may come as a surprise when you see them. But ultimately, these are recurring costs that should be built into your budget.
Unexpected costs include things like living expenses after a job loss, large unforeseen medical bills that aren’t covered by insurance or expenses related to an unexpected death in your family.
It’s impossible to see and prepare for an expense like these because they happen under uncommon circumstances.
How to Handle Surprise Expenses
Determine if your cost is irregular, overlooked or unexpected.
Before you make your plan of action to tackle your surprise expense, know which kind of surprise it is.
- The refrigerator (finally) stopped working.
- Is that a water stain on your ceiling? Looks like your leaking roof leaking needs to be repaired.
- Your vehicle needs a new transmission.
- Speaking of your vehicle, your auto insurance is due this month.
These are all irregular or overlooked expenses. Maybe you can’t foresee all of these costs that life throws your way, but there’s a way you can make sure you’re not completely blind-sided.
Make categories of the different parts of your life and build lists under each category.
Below is an example of how you might categorize unforeseen costs as well as some of the items that fall under each category. Take time to consider all of the categories that make the most sense for your financial situation. If you have a partner, take a moment to make a list together and think through the costs that may fall under each category.
Housing: Homeowners insurance, property taxes, general maintenance and upkeep, appliances, major repairs
Medical: Insurance premiums, prescriptions, co-pays, eye exams and glasses/contacts, the arrival of a new baby and maternity leave, orthodontic care
Vehicles: general upkeep, major repairs, traffic tickets, vehicle registration
Family: Clothes for growing kids, field trips, sports and extracurricular hobbies, date nights, vet bills/pet emergency, gym membership
Seasonal: Holiday spending, birthday spending, yard maintenance and snow removal
Miscellaneous: Unplanned travel, income taxes, wedding gifts, general upkeep and repair of electronics
Once you’ve taken the time to consider and make a list of all of the possible irregular and overlooked expenses, it’s time to add them to your budget, so you’re prepared. Consider how much each category may cost you, and set aside the appropriate amount.
For example, if you know your roof is going to need to be replaced soon, get an estimate on how much it will cost. Let’s say, after some research, you anticipate this costing $8,000. That means you need to set aside $154 every week for a year to save enough for this irregular expense.
You don’t have to save up for EVERY unforeseeable cost, that’s unrealistic. But build some savings into each category as a safety net so that when life throws you a curveball, you’re ready for it.
How to Handle Truly Unexpected Expenses
Now you know how to handle your irregular and overlooked costs, but what about expenses that are truly unexpected, like a job loss or medical emergency?
Do you have an emergency savings? If so, you’re answer is easy. Use the funds that you set aside in case of an emergency such as this.
No emergency savings? It’s okay, there are still some steps you can take. Start by asking yourself these questions:
1. Is this a priority?
When an emergency hits, it’s time to reflect on your priorities. If your child has a medical emergency, taking care of them is a priority, but that may require sacrificing some of your planned expenses. For example, you may have to adjust your budget or cancel that vacation you had scheduled later in the year. Take a look at your financial priorities and adjust your budget to meet the changes.
2. Is it absolutely necessary?
Things that seem absolutely necessary may not be all that important. When a disaster strikes – like your laptop gets dropped and broken - take a deep breath and ask yourself if you can live without a laptop – at least for now. While you may be used to living with certain luxuries, you might find it’s not a huge deal to live without them.
3. Is it urgent?
If your furnace dies in the middle of winter, it needs replaced right away. But some expenses pop up that may allow you time to build some savings. For instance, your pet needs surgery, but it can wait for a three months. Take the opportunity to use that three months to save as much as you can. This is another instance where you can adjust your budget and focus on spending less to build some quick savings.
Expect the Unexpected
If there’s one thing that is certain, it’s that life never goes as planned. The most important thing you can do now to deal with unexpected expenses is to build emergency savings. Even if you’re working toward paying off your debt, saving for a down payment on a new home, or simply cutting costs to make sure you’re living within your means, you should still work on building your emergency savings. That way, you can rest easier knowing you’re prepared for the next financial surprise that comes your way.
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