May 22, 2017
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How to Plan for Those Unexpected Expenses
Each year I’m reminder of how hot it gets here in the desert of Las Vegas. Sometimes there is nothing that will prepare you for the heat wave that is equivalent to you opening an oven every day and walking into it.
I’m sure there are hotter places on earth, but after 30 years, I’m still not used to it. However, there are lots of things we can do or already do to prepare for the summer here.
The same goes for your budget. We know that we can plan for some expenses but we still let them hit us by surprise.
Here are four Easy Steps to Avoiding these unexpected expenses in the future.
1. Find Out What’s Predictable
Most big-ticket expenses are predictable. We’re not talking about that random dinner out decision or new toy that you REALLY wanted. I’m talking car repairs, vacations, new phones or computers.
Even if we’re talking about replacing the tires on our cars, we know they will wear down and need replaced every four years or so.
What has worked well for us as a family is to make a list of these expenses and detail the dates and times that these expenses are due. For example, every year we need to register our vehicles. That can be a heavy expense, especially if you have newer vehicles, you’re looking at dishing out hundreds of dollars that you didn’t plan for.
Read also: Using Personal Capital as an ultimate financial tool.
We all know what happens then. We pull out our credit cards, pay for it reluctantly and then stress about it later, or out of sight out of mind, we just let the debt build up.
2. Start Paying Attention
As we start to take budgeting seriously we will start to be more aware of these expenses. They may hit us by surprise but let that be the last time that it does. Write it down, put it in your calendar or add it to your budget if you’ve already started it.
Let’s break it down: We own some older vehicles and they all manage to expire in December. (I know, typically the worst month for a huge expense. What were we thinking?)
Our total registration for the year is about $500 for all the vehicles. That can be huge if you’re not prepared and don’t have any savings. But let’s image we get hit with it unexpectedly.
What do we do? Well, in the past we would just use a credit card. If we were a bit more on our feet, we would take from our emergency fund. Great, it’s paid, now we can forget about it, right?
Wrong! This is what broke people do. Stop it!
Think about it! You now have twelve whole months to pay for next year’s registration. $500 a year over 12 months and 24 pay periods comes out to $20.83 per pay period.
Is it easier to put away $20.83 in cash each pay period rather than to come up with the full $500 at the end of the year? Heck yes it is!
3. Compartmentalize Each Expense
I know what you may be thinking, “big deal, $500 bucks, just pay for it,” but let’s make a little list of these occurrences and see what we think then.
Cost of Unexpected Expenses each Pay Period:
- Car Registration each year (3 vehicles) $20.83
- Tires for 3 Vehicles every 4-6 years $15
2 Smart Phones every 2 years (non-subsidized) $35.42
- Yearly Gym Membership (cheaper paid yearly) $15
- Vacation Yearly $83.33
- Auto Repairs/Maintenance Yearly $40
- Car Replacement 5-10 years $200
- New Computer 3-5 years $27.78
- Furniture Yearly $85
- Amazon Prime yearly $4.16
Total unexpected expenses each per pay period: $526.52 (based on 24 pay periods)
Yeah, you’re reading that correctly. That measly $500 a year has now grown to an extra $500+ per pay period that we need to save for these expenses! Doesn’t that seem crazy?
You know us, we’re all about reducing expenses so we could probably remove or reduce the cost of some of these but for the most part, these are all future expenses that we need to consider in the long run to maintain a healthy budget that isn’t constantly being broken by some unexpected but predictable expense.
Remember to download my free budgeting template.
4. Put the Money Away Ahead of Time…Seriously
If you’re an old school money guy like me, get an envelope system. Set it up with labels and label every unexpectedly expense. Add money to each envelope in a way that works for you; each pay period, bi-weekly, monthly etc.
The freedom and joy that this preparation can bring to you when that expense finally hits will be palpable. You’ll wake up one morning and think…”Oh man, that crazy bill is due today!” and then you’ll look at your envelope and…
The money is already set aside and you don’t have to take from your savings, your emergency fund, or you kids birthday money. As a side benefit, your kids will love you for that.
Question for you:
What unexpected expense surprised you recently?