Smart Personal Finance Pt 3: How To Plan For Unexpected Expenses
Plan for Unexpected Expenses
Unexpected expenses are bound to happen. The transmission blows on your car right around the time your daughter needs braces. To top it off your washing machine decides to call it quits. All of these are unexpected expenses and something we need to deal with throughout life.Being prepared as much as you can is your best bet when life throws you a financial curve ball.Do your best to anticipate upcoming expenses. If you’re driving an older car, or your dishwasher has seen better days, start saving up to replace the item.You may also want to start keeping an eye out for good deals on the replacement.
Have a Plan
An even better strategy is to have an emergency savings fund. Set up a savings account and add to it monthly. Use it only for completely unexpected expenses. Make sure you know what’s in the account. When the time comes for you to take money out of it, replace it as quickly as possible.Dave Ramsey suggests setting aside $1,000 in an emergency fund as soon as you start getting your finances in order. It might take awhile, but having the peace of mind knowing that you have a little bit of cash set aside for unexpected expenses eases anxiety. (Ask me how I know!)
How to Recover
Here’s how to recover quickly after that purchase. Go over your budget (you have one of those, right?) and see if you can temporarily cut back on some things. Stop ordering pizza every Friday night and make your own at home. If you have an Aldi, they have an amazing deal for 2 pizza crusts + sauce packs for 2.99! Skip a night out on the town and watch a couple of movies on Netflix.Use the money you’re not spending the next few months to refill your emergency fund. For an extra boost, work a few hours of overtime, do a few freelance projects or temporarily pick up a part-time job to get back on track fast.When we hit rough spots, Micah has taken to finding free items on Craigslist or post yard sales (most people want to just get rid of whatever is left). He turns around and sells them on Facebook yard sales or Offer up! That's an instant profit!
What to do Before an Emergency Fund is in Place
But what do you do when the expense comes up before you had a chance to set up the emergency fund?Take a deep breath and assess the situation. Can you make do without the item for a little while? Just long enough to scrape together the funds to repair or replace it?If it’s the dishwasher, that’s easy. You can wash dishes by hand for a little while. If it’s the fridge or the car you rely on to get you to work each day, that’s a different story.If you need the item that broke, evaluate if it would be less expensive to repair than replace. Even if it isn’t the perfect solution, it may get you to work until you can save up for a different car. Shuffle your money around. Your only goal right now is to pay off that expense. If you stick every penny of discretional income to pay off the credit card for the emergency, it won’t take you long.Pay off your credit card and bills as fast as you can. Do what you can to get that emergency fund set up.You won't regret it!
Have an Emergency Fund
Setting up our emergency fund was the best decision we made when we first started on our journey to a debt free life. It was ineveitable, our car needed repairs ALL the time and we were constantly having to pull from the emergency fund.The beautiful thing about it, we didn't have to stress because we knew we could cover it without using the credit card.It took an initial sacrifice of cutting back on extras until we could build up our emergency fund again. However, it was worth it because now we have peace of mind knowing that we are taken care of when an unexpected expense occurs.
Have you set up your emergency fund? What's holding you back from starting?
Check out our previous posts in our Smart Personal Finance SeriesSmart Personal Finance Pt 1: Why You Need To Keep A Household BudgetSmart Personal Finance Pt 2: Put Your Savings On Autopilot