The unexpected happens. Something breaks and needs to be replaced. Things end up costing more than we expected. The list goes on and on.
Some of the most stressful financial situations are those that arise unexpectedly. The best thing we can do in these situations is take a deep breath and realize these things happen every day to millions of people. I’ve been in this situation a number of times and it can be incredibly stressful when the funds are not readily available for the unexpected event. When we reflect back on what happened, as unlikely as the event may have been, it can be reasonably assumed that it would happen at some point.
Today I am going to list 5 unexpected expenses that can be made a little less stressful by designating some savings for the lemons life will throw at you from time to time:
1) Medical Bills
Yesterday I posted about the triple tax advantage of Health Savings Accounts (HSA). Besides just the tax savings, having an account set up strictly for medical costs can take some of the sting out of those payments. I have had some terrible sinus issues this year which so far have racked up about $1,000 in medical costs, not counting the Ear, Nose, and Throat doctor I am going to today (in case you’re wondering specialists are in the $300-$400 range for a visit).
I can honestly say before this year I did not factor any of these costs into our budget and savings. Thankfully I opted to put $3k of my salary into the HSA, and it DOES make a difference. Even if you do not have an HSA consider setting aside dollars just for medical costs. You’ll thank yourself when things do come up.
2) Car Repairs
The crappy thing about car repairs is that they can come out of nowhere and without warning. Also, depending on what the issue ends up being, there is a huge variance in what it’s going to cost you. It could be a simple $200 repair, or you may need an entirely new transmission that will run you a couple grand. Most people do not have a reserve set up for these repairs, which is why I think it’s so painful when they come up.
3) New Car
Sometimes car repairs are so high that you just can’t justify pouring the money into your current car. I have a 2001 Saturn with over 195,000 miles on it. If a repair is going to be over a $500, I’m most likely going to junk the car and start over. Again, most people (myself included) do not have savings designated for a new car. The nice thing is you don’t necessarily need to put much money down on the car purchase. The bad thing? You now have a new monthly payment…usually for at least the next three years, if not longer.
4) Housing Maintenance
A great argument for renting over owning a house is that you don’t have to pay the unexpected maintenance fees. Dishwasher in the apartment breaks? Apartment will replace it. Dishwasher in your house breaks? You have to replace it. Beyond just appliances, things can break and/or need replacement such as roofs, heating/air conditioning, garage door, etc. The list is endless! It’s a smart idea to set aside a little each month to make the constant replacements less painful.
5) Pet Bills
Pets get sick just like humans do. When that does happen, veterinarian bills can add up quick. Usually dogs are more expensive, but if you have a sick cat the bills can get into the thousands. In the last year of his cat’s life, J. Money and his wife ended up spending over $3k on vet bills. Also keep in mind that cremation services will cost a couple hundred dollars as well. Do yourself a favor and start setting aside money for an unexpected pet illness.
The key point: If possible, try to set aside funds specifically for those unexpected expenses that life will give you from time to time. It will make these expenses a little less painful.
How do you handle unexpected expenses? Do you actively set money aside for these situations?
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Photo by Becky Snyder
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I think that if that picture was me the unexpected expense would be the fact that I HAVE A PORSCHE!!! :) I wouldn’t mind paying to get it towed and fixed :)
@Money Life and More HAHA so true! Unless you spent all your money buying it and have none for those unexpected tows ; )
I can’t say I put any money aside for stuff like that. I do have a buffer in my checking account. Beyond that though, I would have to resort to putting it on my line of credit. I am just wary of leaving too much money in a low interest account when it could instead be making me a much better return in the stock market.
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DC, I agree that you should save up for any home maintenance you might need to do in the future. Many projects can’t be done on your own, and require a contractor to work on them. I know for a fact that it is dangerous to repair things like a garage door on your own. The springs contain a lot of force, and need to be handled properly. http://www.calgaryoverhead.ca/en/garage_door_repairs.html