How do you plan for unexpected expenses (like a broken boiler, car repair, or medical emergency) and stay on your budget? Every month, I feel like we have a $400-$600 chunk of money that we spend and didn’t plan to. -Christa
Christa, thanks for asking this question. It’s one that many people wonder about and struggle with. I thought about your question and talked to my husband to get his input and here are our thoughts:
1) Plan in Advance
While there are some expenses that blindside you, there are many more expenses that you can plan for. For instance, your car will eventually break down or need repairs, you will have medical expenses at some point, and your home will need repairs.
Start expecting these things to happen and begin planning for them ahead of time. Look at your budget from the last year and see what categories were most likely to have those unexpected extra expenses.
2) Pad Your Budget Categories
You won’t know exactly how much you’re going to need in each budget category, but begin thinking ahead to what could possibly be breaking down or needing repairs in the next few months or few years and start preparing for those extra expenses ahead of time. By doing this, you aren’t completely caught off guard or put in a bind when you need to pay those repair bills.
We put extra money aside in a number of our budget categories each month — money for medical expenses that may be coming, money for home repairs that may need to happen, money for car repairs that will likely be needed. Each month, if we don’t need this extra money, we just keep setting it aside and building up a reserve. This way, when the “unexpected” expenses pop up, we’ve already planned ahead for them.
Note: If you don’t have the extra wiggle room in your budget to pad your budget categories, look at your budget as a whole to see if there are any areas you can cut back in to free up money to pad those categories that you’re continually in the red in right now. If there aren’t any areas or things you can cut, it’s probably time to start looking for ways to increase your income.
3) Beef Up Your Emergency Fund
I also highly recommend beefing up your emergency fund. If you end up with extra expenses one month and your pre-budgeted money doesn’t cover it, you have your emergency fund to fall back on. This makes the unexpected expense an inconvenience rather than a true emergency.
Consider making short-term sacrifices, taking on a few short-term side jobs, or selling items you own to give you some extra income to put toward building and increasing your emergency fund. (Need some ideas? Check out my series on 31 Ways to Earn Extra Cash Before Christmas.)
What advice and suggestions do the rest of you have for Christa? I’d love to hear!