Unexpected expenses and how to plan for them
Oscar Wilde said, “To be prepared for the unexpected is a sign of a modern intellect.”
We all know life can be unpredictable, but when it comes down to our finances, we often don’t plan for the unexpected. You may think you have a good handle on your finances, managing your bills and expenses, saving for vacations, etc. How financially fit are you when it comes time to pay large bills you didn’t plan for? Would you be able to come up with cash in an urgent situation? How much money?
If you answered “no” to the question or “not much,” it’s time to reconsider your monthly budget. You might want to adopt the modern mentality Oscar Wilde mentioned! Here are four unexpected expenses that you should plan for.
Medical Expenses
Most of us take health for granted. When we are in good health, we rarely consider how ill health could affect our daily lives, let alone financial ones. Many of us budget for minor expenses such as check-ups and dental appointments. We also plan for medications. However, we don’t plan for long-term, more severe problems. Medical emergencies are one of the most unexpected expenses we will ever face. You can’t plan for a bus accident or a severe illness, but it is essential to prepare your finances accordingly. Direct and indirect costs are the two main types of expenses. Direct costs include hospital fees, surgery, tests, medication, and everything related to your illness, injury, or recovery. Medical bills are not the only thing that can affect your finances when you get sick. You may also be burdened by indirect costs, such as time off work and needing specialized equipment.
How to Plan for Medical Expenses
Ensure that your insurance policy is current and covers major medical emergencies. If you don’t have enough coverage, the high cost of healthcare could bankrupt you. Insurance alone will not protect you from financial ruin if the injury or illness that caused it is severe enough to require time off work. You should have enough money in your bank account to cover your expenses and bills for three months. If your injury results from an accident, you may be eligible for compensation if someone else is at fault. You cannot rely on this strategy to save money, but you must be aware of your options if something terrible happens.
Household Expenses
You will know if you are a homeowner that it is not cheap. The cost of acquiring and maintaining your dream home is high. Unfortunately, significant expenses do not stop rolling in once escrow closes. Most people schedule minor repairs in their homes and do maintenance every year. Sometimes, however, this isn’t enough. Emergency expenses include a burst pipe or furnace not working structural damage, and other major household expenses. It is not always possible to wait until the money for repairs has been saved. These problems need to be resolved quickly!
How to budget for household expenses
Prevention is always the best option. Regular maintenance is something you cannot ignore. Many problems can be fixed quickly and inexpensively if they are discovered early. Spending a little money each year to keep your house in good condition will save you from financial stress in the future. You will still need to have a plan in place for when you run into property issues. It is essential to have homeowner insurance, as it can cover the cost of property repairs. This does not mean you are off the hook regarding saving. Insurance does not cover all significant issues. Think regularly about roof repairs, air conditioner replacements, exterior painting, etc. You may not have heard about the 1% rule: you should save 1% of your home value annually for maintenance. You should aim for 2% if you want to be covered in household emergencies.
Auto Expenses
Everybody knows that cars and their maintenance can be expensive. You can usually estimate how much money you’ll need to spend depending on the age of your vehicle. If you don’t rotate them regularly, your tires with 60,000 miles will last only 35,000-40,000 miles. Driving 10,000 miles per year, you’ll need new tires every three or four years. Batteries and engines have a limited lifespan. You may get unlucky occasionally (or lucky, depending on the situation), but you should always plan to save money for future repairs. You cannot predict an accident. Finding the money to repair your car following a collision can be difficult, as the average cost is over $3,000. If you are at fault for the accident, it is not only your car that must be repaired.
How to Plan for Auto Expenses
You can’t do much else but get auto insurance. Be sure to get a great deal on your insurance and that it covers everything. Online and over the phone, shop around. It would be best if you did not assume you’re getting the best deal because you’ve been with your insurer for many years. By doing online research and comparing insurance companies, many people can reduce their premiums by half. You can plan for future repairs, but the best thing to do is to avoid them. Like homeownership, car ownership also comes with some responsibility. You need to maintain your vehicle in good working condition so that minor problems don’t become bigger ones down the road.
Funeral Expenses
You should not ignore planning your funeral, even though it may seem morbid. Your family will have to plan your funeral after you pass away, which can be challenging for grieving people. The average funeral costs $9,000 in the US, so if your family does not prepare for this, they will be forced to borrow money or become deeply in debt.
How to budget for funeral expenses
You will soon realize the importance of saving for such a significant expense. You don’t want to burden the family with these costs. You can plan your funeral by paying for some of the prices now rather than saving money. You could also opt for funeral coverage, which will deliver a lump sum to your family if you die. Funeral insurance has more restrictions than life insurance. You should carefully read and understand the policy before you sign up. No matter how well you plan, unexpected events and expenses will still occur. To minimize the risk of a dramatic impact on your household and personal finances, you should prepare as much as possible. Simply, you should have adequate insurance to cover any eventualities. You should also save as much money as possible for the expenses that are not covered.