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Q&A: How do you plan for unexpected expenses?

What to do when you have unexpected expenses

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.

How to plan for the unexpected

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!

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  • Denise says:

    I agree with what Crystal said about how there are things that seem to blindside us but that are really things we can plan for. So I keep an excel spreadsheet with a list of budgeted costs for car registration, car insurance, car repairs, life insurance, dental visits, eye visits, work clothes and much much more. Then I take that total amount for the year and divide by 52 and then I set aside that much money each week into a separate bank account. Then each time one of those annual or semi-annual or emergency expenses comes up I transfer the money into our checking account.

  • Thomas Matty says:

    Keep $1000 handy for emergencies (unforeseen spending). Pay off all of your debt so your income is freed up for emergencies. Then supplement by saving 3-6 months of your expenses for larger issues. This essentially allows you to self-insure for for some items. This is courtesy of my hero Dave Ramsey!

  • Lana says:

    We have many budget categories that are not standard for most budget plans. We have an auto repair, appliance, non budgeted, household repairs and I am sure some I am not remembering. Those funds roll over and build up from month to month. We do not touch them unless a purchase or repair is needed. We have a savings account that is available for large medical expenses. We did have $3500 out of pocket for medical already this year but since we had it in savings we are not badly hurt by it in our budget other than knowing that we need to rebuild it in the savings account. If we do have an extra need I go through the budget and do what I call skimming. I take $20 here, $5 there and maybe even $50 from some areas, not touching the ones that need to stay there and build up. I generally can come up with up to $300 of we are in real need of it. I would rather eat from the pantry or put off clothing or other similar purchases than touch savings if we can at all avoid it.

  • Life is full of unexpected expenses. We always save up for those expenses in our budget. For us: medical, home repair, auto repair (and auto purchasing), our auto insurance bill that comes due every six months, clothing for the family, gift money, vacation expenses, and so on. It stuck with me when Dave Ramsey talked about how needing to buy school clothing for your children isn’t a surprise and should be planned for. It just struck me so much because all of these “unexpected” expenses really should be expected. 😉 I know people who panic when normal non-monthly things come up like needing oil for their furnace or that 6-month or yearly auto insurance payment or car inspection expenses or shoes for a child who outgrew them. All of these things are just a normal part of life. If we aren’t planning for them, we’re not really budgeting in a meaningful way. (Of course, sometimes we get hit with something completely unexpected like an engine dying in a not-so-old van, but that’s why you need a big emergency fund. We had this happen to us about 4 years ago, and while that $8,000 for a newer van wasn’t planned for, we didn’t have to panic, but just spend the money we already saved.) Without Dave Ramsey’s FPU, I know our family would have been in dire traits with situations like that. His course was SUCH a blessing!

    • Andrea says:

      “If we aren’t planning for them, we’re not really budgeting in a meaningful way.”

      Well said! I completely agree. Sometimes the really unexpected happens like an accident or a family emergency. If we’ve budgeted well, our emergency fund can be saved for those sorts of things instead of the monthly “extra” expenses that seem to pop up every month.

  • Elizabeth Sims says:

    We have been working on keeping our emergency fund funded for nearly 15 years. what crystal is suggesting to put the extra from budget into your fund is a good idea. i set small goals … 100 back from taxes one year, next yr the goal was to keep 200 etc and continued like that so that 13 years later when the orthodontist had to be paid 5k up front because they were out of the dental network it was there… now we start again. make reasonable goals that don’t cause you a lot of hardship so you will be less tempted to tap into it.

  • Susan says:

    I bought my home 20 years ago when I was in my twenties. It was brand new. The best advice I got was from my dad, who told me to set aside $100 every month for maintenance. It was hard for me to imagine my home needing expensive maintenance when it was brand new, with everything under warranty. Back then I wasn’t mature enough to think long term, but after a few years I started taking my dad’s advice.

    Fast forward 20 years and I’m SO glad I did! I wasn’t 100% faithful in saving $100/month, but thankfully I’ve saved enough to pay for the maintenance and repairs that the house eventually needed. Within the past few years I’ve had to replace the roof, the HVAC, the water heater, and all the kitchen appliances. I’m currently in the middle of replacing the carpet for the second time, and just the other day a windstorm blew my fence down, so now that will be another expense. On the one hand I wasn’t planning on replacing the fence right now and it troubles me to take yet another large chunk of money out of my savings. But on the other hand, twenty years is a long life for a fence, and I should have been prepared to replace it, and thankful that I can pay for it.

    My advice to anyone buying a new home would be the same as the advice my dad gave me.

  • Heather says:

    I agree with the other advice.
    I also think it is helpful to get out the mindset of thinking of these expenses as unexpected or emergency. When I thought that way, it would be so upsetting to have to spend savings on something like a furnace repair. It was mentally draining. Now I just expect that I will not get to spend my money just how I like! A good chunk will go to non-fun things, and that’s just part of being alive on this Earth!

  • Ashley P says:

    It’s ALL about the emergency fund. When we bought a house, we wound up dipping into our emergency fund when the down payment came out to be a teensy bit more than we expected. We wouldn’t have been able to afford the house otherwise. It wasn’t long before I’d wished I’d put more into that emergency fund beforehand.

    On our way to sign the papers to close on the house, we were rear-ended, and our only vehicle totaled. I was 8 months pregnant. Waiting several weeks to find the right car at the right price was NOT an option. Unfortunately, our credit score had taken such a hit from being checked by the mortgage company so many times, we couldn’t get financing for a car. So we had to get a lease out of necessity.

    Since our mortgage is much cheaper than the rent we had been paying on our apartment, we squirrel away the difference into our emergency fund every month (minus what we spend on my medical bills from the delivery). We won’t be caught short on our emergency fund again. Fortunately, between the insurance settlement on the car, and our tax return this year (buying a house and having a baby in the same year means BIG return!) we should have enough in savings at the end of the lease to buy the car outright, without touching the emergency fund at all. 🙂

  • Deanna says:

    We try and plan for the “unexpected” expenses as well. When we know it getting close to time for our car to start needing working (even though it hasn’t shown signs yet) we put money aside. When we first hear about a wedding we need to go to we start putting aside little bits of money when we can. For when the unexpected really does happen or those planned for unexpected expenses are way more than we planned we are so thankful for our savings! We recently had to have several thousand dollars done to our foundation and it was great not to have to be worried and stressed.

  • sarah says:

    Another way to approach it is to avoid paying for these things…as in learn to do them yourself. Not that I can talk, but my husband figures out how to do things. As in serious car repairs, serious home repairs, HVAC repairs, etc. He saves our family a lot of money. He is not a professional repair guy, so the jobs are often done very slowly, and being patient is challenging, but I appreciate his persistence and the savings.

  • Jessica says:

    We have always had a special savings account called the “House” account. It works as our emergency fund/you know it’s coming maintenance/vacation fund. From each paycheck, a deposit is made directly (this is important). From each large cash flow we receive (bonuses, tax refunds, bday money etc) 90% of that goes in. We do not carry cards that make it easy to access. The fund has grown quite large, and we no longer need to worry when those items come up (because they ALWAYS do) The house account pays for vacations, medical expenses, car repair and house repair without interrupting our daily budget. I should mention, I would never wipe it out with a vacation, because if you do, you will need car repairs, so we always leave a TRUE emergency buffer of a few thousand dollars. This makes any bad event just a bit less stressful.

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