Understanding and Budgeting For the Unexpected Expenses

At some point in life, you may find yourself in a scenario where you must pay for an unexpected purchase. Thus, you need to have a concrete financial plan and a flexible budget to make up for unexpected finances. Ideally, you must have an emergency fund that finances almost half a year of rent or mortgage expenses, groceries, utilities, and prescriptions. But what exactly is an unexpected expense?

Unexpected Expenses

Unexpected expenses are erratic. There's no way to avoid them or to know how much they will cost. Examples of unexpected expenses include:

  •  Plane tickets to be at an unexpected funeral

  •  Unusual medical bills that health insurance doesn't cover

  •  Major home repairs from a natural disaster

  •  Medical emergencies

  •  Car accidents 

  •  Electrical or plumbing emergencies

  •  Unemployment

  •  Tax increases

  •  Pet emergencies

Responding To Unforeseen Expenses

 1. Acknowledgment- The primary step in responding to unexpected expenses is to acknowledge that there will always be such expenses in your life. 

 2. Evaluate Your Savings- If the money saved for an emergency won't make up for the unforeseen expense, look into your other reserves, and tap into those funds.

 3. Revisit Your Budget- Getting hit with an unexpected expense gives you a chance to check out your budget. Catalog your expenses into needs and wants and find ways to lessen your unnecessary expenses. 

 4. Look Into Available Credit- Find out how much credit you possess and the available aggregate. If the credit isn't enough, opt for requesting your granter to grow your credit limit.  Steps To Make a Budget Plan for Unforeseen Expenses Budgeting for unforeseen expenses can be a daunting task since there are many changes and unknowns regarding the future. 

 5. Identify The Unexpected Expenses- Make a list exhausting all seasonal expenses like car repairs, dental bills, property taxes, etc.

 6. Track Your Spending- Look at the calendar together with credit and bank statements to see any irregular expenses you spent on with credit. Tracking your spending helps identify expenses you can cut out completely. 

 7. Add Up Discretionary Expenses- Tally up the amount of money spent on irregular expenses above your regular monthly expenses, and divide by the number of paychecks you have each year. This will show how much you depend on your credit card and find areas where cutting costs makes sense.

 8. Start Automating Your Savings- Automating your savings with an organized money management system may be a simple way to keep money safe from yourself. Automating your finances will aid in reserving time and effort regarding money management. 

 9. Put Away Extra Income- The general principle is that 1% of the value of your home should be set aside every year for general expenses. To achieve the 1% saving, you can stow away a fraction of your extra income, growing your nest egg. 

 10. Take Out a Short-Term Personal Loan- Using a personal loan can be a low-cost option to consolidate debt. You will save money by lowering the total amount of interest you pay every month. 

 11. Open A High-Yield Savings Account- These savings accounts provide higher interest on your money than standard savings accounts. They are more flexible and less risky than most investments. 

To learn more, reach out to National FCG for better credit.

BJC