Unexpected expenses can create long-term financial hardship for many people, especially if you do not have the plan to manage them. These economic events can happen anytime, even when you think everything is going well. Preparing for unexpected expenses could help you avoid financial burdens later, and it may help you manage the situation effectively and affordably.
Type of Unexpected Expenses
An emergency expense is any situation where you have an unexpected expense that is not covered in your budget and that you cannot necessarily plan for in advance. For example, your tax bill or auto insurance premium is not unexpected expenses; even though they may not be monthly costs, you can plan for them.
Consider the following common types of unexpected expenses. It may be wise to create a plan to deal with these, as most of them can happen to anyone.
Medical emergencies
A fall, car accident, or sudden illness can mean an expensive trip to the emergency room. An ER visit could cost between $150 and $3,000 for a simple need and closer to $20,000 if some type of emergency service, like surgery, is necessary. Much of that might be covered by health insurance, but most policies these days have a relatively significant annual deductible that can cause economic pain. And even a minor illness may cause you to lose time at work for an extended period, making it hard to meet your financial obligations.
Pet emergencies
An emergency vet appointment for a sick or injured pet could amount to costly bills you may have yet to plan for in your budget. For example, if your dog eats poison out in the yard, that could end up costing $250 to $6,000 for the treatment. An injury could cost $800 to $8,000, depending on the type of treatment needed.
Auto repairs
You can plan for things like new tires and oil changes, but it can be much harder to manage things like a car accident that suddenly makes your car undrivable or the failure of the transmission. Expect to pay around $6,000 if you need to replace a transmission and as much as $400 if a rock hits your windshield, leading to the need to replace it.
Home repairs
Home repairs for broken appliances or backed-up toilets can become costly quickly. Even with good maintenance, you may need help covering unexpected costs. For example, if your home’s roof develops damage to it and starts leaking, that could cost around $11,000 to replace. A backed-up sewer line could mean digging up your front yard for a replacement, costing anywhere from $2,500 to $15,000.
There are many other types of unexpected expenses, such as:
- Necessary and unexpected travel
- Gifts for events you didn’t know you were being invited to
- Unexpected need to have a down payment to buy a new car because it’s too expensive to repair the old
Budgeting for Unexpected Expenses
Having money put aside to help you with emergencies and unexpected costs like this can be very important but only sometimes easy to do. There are a few things you can do to add unforeseen expenses to your budget.
- Have a budget that includes all your expected costs, including seasonal costs like taxes and maintenance costs. That way, these are planned for.
- Take a look at your previous unexpected expenses for the last year. Look at credit card and bank statements. Document how much you spent on these costs in the last year.
- Add up all those unexpected costs and divide that by 12. That is the amount you should put into your budget every month to help cover the cost of these types of expenses.
- Establish a bank account just for emergency funds like this. Put that monthly amount into the account and build it up over time. That way, it’s there when you need it.
Preparing for Unexpected Expenses
Preparing for unexpected expenses like this can help alleviate some of the financial frustration you have when an emergency occurs. However, to make it possible to pay for these costs, you must be consistent about building up an emergency fund.
At the same time, be proactive. Plan for what’s to come, such as major repairs to your car or home. The more you can budget for and plan for in advance of needing those funds, the better suited you will be for covering those costs when they arrive.