What is an unexpected expense?
The fact that we can plan for an unexpected expense might seem odd to you because, if it’s unexpected, then how can you plan for it? Unexpected expenses are those that you can’t really predict but are likely to happen. These can be vet bills, medical bills, car repairs, or house maintenance.
5 Ways To Plan For An Unexpected Expense
1.) Brainstorm everything that has derailed you financially in the past
Look back and brainstorm everything you can think of that might have derailed you financially. Was there a car repair that set you back? Did an unexpected roof repair hit you hard?
2.) Try to estimate your annual costs
Your annual costs are an estimation. For example, think about car maintenance. Look through your bank statements and review your car expenses over the past year. This might include oil changes, tire changeovers, and random repairs throughout the year. By estimating the cost for an unexpected expense, you can do a better job of minimizing the unpredictability of that particular expense in the future.
3.) Set up a separate savings account
This is a great strategy for budgeting. A lot of people set up multiple savings accounts to partition their money. Others might use a cash envelope system, but since everything is digital now, this might be more difficult. Allocating money to a separate account each month, and keeping it separate from your other ‘spending' money provides you with a better sense of how much you’re saving.
4.) Start saving monthly amounts
Allocate a specific amount monthly to put towards your ‘rainy day' fund. This helps to minimize the ups and downs of unexpected expenses.
5.) Incorporate categories into your regular budget
Obviously this tip is for budgeters. Even if you already have some sort of financial system to deal with things like rent or groceries, you can now add different categories to help estimate how much it will cost you to live each month. This is not about perfection. Remember, there are certain unexpected expenses that cannot be accounted for, but are still considered within the realm of possibility.
Kelley Olinger is a Coach, Consultant, and Founder of Reconcile Your Wallet (www.reconcileyourwallet.com), assisting high-achievers to align their personal finances with their personal aspirations. Kelley worked in Residential Real Estate with a focus on pre-construction development for over a decade in Victoria, British Columbia, and recently completed her MBA. In this article, she discusses 5 ways to plan for an unexpected expense.