Planning for the Unexpected: Four Ways to Deal With Unexpected Expenses
We all have them, those pesky bills that show up randomly throughout the year, but are really bills that we know will come sooner or later: car insurance, birthday and holiday gifts, family vacations. Then there are those expenses that just pop up out of the blue: sending an FTD flower delivery to a friend who just had surgery, learning that Johnny really did make the traveling soccer team this year or having an appliance suddenly break the week after the warranty expired. All of these expenses, planned or not, can be handled relatively easily with these four steps:
Plan Your Yearly Budget
Even if you do monthly budgets (try using these forms from Dave Ramsey to get you started) you’re probably missing out on things like car insurance, Christmas gifts and summer camp fees which happen only in certain months. To account for all of the irregular expenses that happen, review your past year and make a written list of all the “out of the blue” expenses that you had. Your list might look like this:
• Christmas gifts- $500
• Birthday gifts- $500
• Vehicles- $600
• Cat’s surgery- $500
• Miscellaneous gifts- $200
• Vacation- $700
That’s an extra $3,000 a year, or $250 a month, that needs to be accounted for in your monthly budget so that you don’t go into debt.
Know How Much to Budget For Each Month
Now that you know you need to squeeze an extra $250 out of your budget, it’s time to see where that money can come from. Maybe it will be easy for you to take that money from your paychecks without blinking. Maybe your weekly movie and dinner nights will have to be done at home rather than out on the town. Family Circle suggests things like renegotiating your gym membership fees, shopping for cheaper insurance policies and selling old electronics for cash.
Keep Your Hands Off the Money
In any given month, you’re not going to use the full $250 you budgeted for. Some months you’ll come pretty close to cleaning all the accumulated money out, while other times you won’t even touch it. To make sure that you or your partner don’t accidentally think that you’ve got extra money to spend, do one of two things: put it in a separate bank or put it in sub accounts that are attached to your current account.
Taking the money to a different financial institution isn’t really difficult, and it ensures that you pretty much forget about it day-to-day, but it requires you to remember to transfer the money back to your checking account when you do need it. While this is a must for some people, others can get by if they simply divide the money into sub accounts which are attached to their current account, which Mint (3) says are now available at many banks. Some of sub-account ideas are:
Then transfer your predetermined amount into them each month, and use the funds whenever an unexpected bill comes up.
Build Up A Cushion
When you first get started with this system, you may find that you’ll have a large bill due before your account gets adequately padded. If you have an emergency fund, you can just borrow from that when the time comes, or you could hustle it up and earn some extra money. Start pet sitting for neighbors when they go out of town, offer weekend babysitting so couples can get in some alone time, put your mechanical skills to use and fix cars in your spare time.
April Lewis-Parks has more than 15 years of experience in the financial sector, she is a certified financial counselor, and a consumer affairs advocate. As the director of education and public relations for Consolidated Credit she is dedicated to generating awareness about personal finance issues and acts as their consumer affairs advocate. As host the of MissMoneyBee.com, she promotes financial education and offers timely and informative personal finance articles to educate the public. April’s promotional efforts can be seen in past issues of the New York Times, Washington Post, Newsday, Consumer Reports, the Business Journals, Money Magazine, Glamour, Cosmopolitan, Family Circle, among others. Connect with April on Google+.