Relatively small, unexpected expenses such as a modest medical bill or car repair can be a hardship for many families in the U.S., reports the Federal Reserve. For a hypothetical expense of $400, around 63% of families would pay with cash or equivalent but 37% would have to rely on credit and 12% would be unable to pay by any means. The statistics are an important wake-up call to many facts—including the usefulness of budgeting for unexpected expenses. The following considerations can help those wishing to fulfill this goal.
Calculating So-Called ‘Unexpected Expenses’
Some irregular expenses can be more or less calculated at the beginning of the year. For instance, having a dog can be estimated at costing you between $1,400 and $4,300 per year. This amount includes food, vaccinations, treats, and the like and it should be set aside as part of your savings so it doesn’t ‘hurt’ every time you need to get your pooch a winter coat or buy them a new toy. Maintaining a car, meanwhile, can set you back between $10,800 and $12,000 per year (this amount includes gas, the price of your loan, insurance, and the like. Make specific calculations for all your expenses so that you can figure out whether you can afford to pay them with your current wage structure and circumstances. Aim to have enough in your savings account to cover these bills plus a little more, setting aside 20% of your monthly income for this purpose.
Insurance is a Wise Choice
The things we sometimes deem ‘unexpected expenses’ such as vet bills, medical emergencies, car breakdowns, school expenses, last-minute travel needs, and home maintenance expenses, are actually less unexpected than it might seem. It is important to have a specific amount set aside to cover these and other expenses but it is also vital to lower each expense as much as possible. One way is through insurance. Just one surgical procedure can cost thousands of dollars, so it is worthwhile paying around $250 a year for a pet health insurance policy with no annual maximum. You can also get mechanical breakdown insurance and homeowners insurance. If you live in a high-risk area, you should take out a flood or earthquake insurance policy.
Dealing with Small Last-Minute Expenses
Sometimes a truly unexpected expense hits you out of the blue—a birthday you had forgotten, an outfit you would like to wear to a wedding or important party. If so, you may have considered a quick payday loan, which is done online and provides you with the amount you need on the same day. Some companies offer specific loans containing a small amount—one example is the 200 loan from My Quick Loan. If you opt for one of these loans, make sure to opt for one offering reasonable interest rates. These range from around 43% to around 1333% for quick loans (depending on how long you take to pay the amount back). Because rates are generally higher for these loans than is the case with standard loans, aim to pay it in a short time frame. Moreover, ensure you don’t pay upfront fees or send money in return for a loan.
Considering Additional Employment
You may find that your monthly expenses (with contingencies included) are more than you can afford on your current salary. In this case, you can either pare down expenses (for instance, by opting for public transport instead of a car or buying a cheaper car), or consider additional employment. Approximately 13M workers in the US have more than one job, seeing pluriemployment as a wise strategy that diversifies their stakes and enables their families to earn a considerably larger income. Pluriactivity is also wise for those wishing to earn enough to be able to invest, not just save.
Many unexpected expenses can actually be foreseen with proper planning. Sit down and crunch numbers, estimating how much each major expense in your life sets you back per year. Try to build a healthy savings nest, obtaining additional employment if required.