Most people have been caught out by an unexpected cost at some point in time. Instead of letting this happen to you again, here’s how to plan for expenses you didn’t anticipate.
An unexpected expense could come from anywhere, and it usually catches people totally off guard. It might be something that goes wrong with your car or your house. It could be a bill you didn’t know was coming. Or it may be an item of your property that gets lost or damaged, such as a cell phone or laptop, and needs replacing urgently.
Sometimes an unexpected expense is something you forgot was coming. When you have to pay for something once a year, for example, you can forget that this infrequent bill was due. In other situations, an unexpected expense comes from something you rely on, in which case it would pay to have money set aside for ongoing maintenance.
Although unexpected expenses catch you by surprise by their very nature, there are things you can do to be better prepared. Here are five tips that could really help.
1. Identify Finance Sources
One way to plan for unexpected expenses is to know what financial options are available to you, should an extra cost arise. This could be as simple as knowing how much you have in the way of savings, or what your credit card limits are. This way, if something comes up, you already have a rough calculation of numbers in your mind regarding what you can afford. Another way you can plan for extra expenses is to compare personal loan options. Knowing how much you could borrow if something comes up also helps you handle unexpected situations a lot better.
2. List Infrequent But Regular Costs
To deal with the unexpected expenses that are bills you had forgotten were coming, you could make a list of all the costs that don’t occur frequently, but will happen at some point. This could be things like annual home or car insurance policies, your annual car registration costs, or any other insurance premiums you voluntarily pay. Check through your bank and credit card records from the previous year or two and highlight all the infrequent costs you made that you are likely to have to pay again.
3. Consider High Risk Possibilities
Another way to plan for unexpected expenses is to look at the areas of your life that carry higher risks for ad hoc costs. If you own a car, it is likely you will have to pay for repairs and parts replacements every now and again, since all cars suffer from general wear and tear. Everyone also has certain costs that relate to their health sometimes. Think about any check-ups or prescriptions you might need, if you might need new glasses at some point soon, or if your children may need certain check-ups, braces or glasses.
Another thing to factor in is if you rely on any technology for your day to day life. For most people, cell phones and computers are essential, and these will also break down at some point in time. And finally, there are many ‘nice to have’ extras that often catch people by surprise from a financial perspective. This includes Christmas – not only to buy Christmas presents, but also the cost of hosting festive meals. Identifying the highest risk areas in your life for unanticipated costs can help you ensure you have money set aside to deal with them.
4. Set Aside Money
Once you have identified the main areas of your life where extra expenses might arise, you can understand the additional amounts of money you want to have access to in order to pay for them. Knowing what lines of credit you have access to is important and gives you peace of mind if you get an unexpected bill. Setting some money aside is also a good way of feeling more secure financially. If finances are tight, you may have to think creatively about how you can create an extra financial cushion. You may want to consider everything from doing bulk grocery shopping to save money, to selling some unused items from around your home to build up a small amount of emergency funds.
5. Get Insurance
If there are certain areas of your life that carry too much risk for unexpected expenses that you would find difficult to cover, then insurance is another option. For example, if you have a pet who feels like a member of the family, and you couldn’t cover veterinary bills if they got sick, then pet insurance could be a wise move for you. There are also insurance options to cover situations such as critical illness or disability, meaning that you will still be able to cover unexpected expenses even if you come across more difficult times.