A predictable unexpected expense may seem like a contradiction of terms. After all, how can you predict something that’s entirely unexpected?
Being able to imagine where things could go wrong in the future is the mark of a true financial planner. Your predictions may not be right. In fact, this might be the only time when you would prefer to be wrong! But these mental exercises are good practice for a real emergency. By thinking about what can go wrong, you (and your budget) are better prepared if your forecast becomes a reality.
What is an Unexpected Expense?
First, let’s clear up any confusion you might have about an unexpected expense. Plenty of things can technically surprise you if you forget to include them in your budget, but only certain things can claim the title of unexpected.
Unexpected expenses are unpredictable in a couple of vital ways. For one thing, they don’t follow a schedule at all. They can arrive randomly at any moment. You can have several arrive in your life back-to-back, or you can go years without dealing with one at all.
For another, unexpected expenses don’t come with any forewarning. This makes them stand apart from infrequent bills and irregular expenses that you can forget to include in your budget. Take, for example, quarterly property tax instalments. While your taxes may not be as frequent as rent, they are just as regular as any housing cost.
Another way to think about the unexpected? It can happen at any time, but you can’t guarantee that it will. Worse yet, you can’t predict how much an unexpected expense will cost.
What Are the Most Common Unexpected Expenses?
Now that we have a definition out of the way, let’s share some of the most common unexpected expenses the average person deals with every year.
1. Medical Emergencies
Your monthly budget should account for routine healthcare costs, like annual checkups and regular medication. But sometimes, you can’t predict the help you’ll need in an emergency. You can be involved in a collision or hurt yourself attempting a DIY project, requiring an urgent trip to the emergency clinic.
2. Household Repairs
Most weeks, you can expect to take care of your home in the usual ways, like sweeping the floors and mowing the lawn. But in emergencies, you can be dealing with bigger chores on your hands. A windstorm can hurtle a tree limb through your living room window; your 10-year-old furnace can break down, requiring a replacement; and your dishwasher can leak while you’re out of the house, causing flood and water damage.
3. Automotive Repairs
A vehicle is going to need yearly maintenance to run at its best on the roads. According to the AAA, you should save at least $50 each month to cover maintenance and unexpected repairs. But this rule of thumb may not be enough when you hit an unlucky streak. You can drive over a nail and burst a tire, or a coolant leak can cause your radiator to smoke — car trouble can come in a lot of different shapes and sizes.
4. Tech Issues
Every device has a lifespan, but accidents can shorten this timetable considerably. If you accidentally drop your phone and it shatters upon impact with the sidewalk, you have to figure out how you can get a replacement phone quickly.
5. Pet Emergencies
Our pets can experience health issues just like their owners. Just like your own health, you should budget for annual checkups and routine vet care within your budget. However, you can’t predict if or when Fluffy the cat will eat a rubber band and need urgent surgery, nor can you predict if Fido will need overnight monitoring after eating chocolates — wrappers and all.
6. Travel Expenses
Family emergencies and funerals can have you packing your bags unexpectedly. Unfortunately, last-minute flights can be very expensive.
7. Gifts and Other Spending
To round out this list, let’s look at unexpected expenses that don’t come with emergencies. Sometimes, you can be a last-minute addition to a wedding and need to buy an outfit and a gift; you might clinch that job after several rounds of interviews and need to upgrade your professional wardrobe.
How to Prepare for an Unexpected Expense?
With so much uncertainty surrounding the unexpected, it may seem like budgeting for these expenses is impossible. But it’s not as hard as it sounds. You don’t need to know the exact issue or its cost to start preparing. Follow the tips below and you can be ready for nearly anything:
1. Save an Emergency Fund
An emergency fund is something you build in installments. With every paycheck, you squirrel away a portion of your income into a “just in case” fund. Also known as a financial cushion, backup, and safety net, the emergency fund helps you feel prepared for emergencies when you can’t ignore or delay unexpected expenses.
Most financial advisors recommend you have enough money to cover three to six months of living expenses. While this goal may take you a while to achieve, knowing you have this amount on standby can help you feel at ease.
2. Establish Your Backup
Reaching the recommended goal for your emergency fund can take a long time. Unfortunately, the unexpected can arrive while you’re still establishing your fund. Many budgeters feel safer knowing they have a line of credit in their financial toolkit. This way, you have the means to cover the unexpected even when your emergency fund falls short.
To learn more about how a line of credit works, check out how a website like MoneyKey defines unexpected expenses. According to their definition, an online line of credit from MoneyKey is best used as a backup for unexpected emergency expenses. In other words, if you find yourself facing an emergency expense and don’t have the savings to deal with it, it may be a good idea to consider applying for a line of credit.
A line of credit joins other emergency loans that may help you in a pinch. Research emergency loans in advance to understand the pros and cons of each — this way you can make an informed decision if you ever have to borrow money online.
3. Get Insurance
Health, home, pet, and car insurance are there to provide an additional safety net. By paying into them monthly, you purchase coverage for large-scale emergencies that would be hard to cover with the average emergency fund or line of credit.
4. Be Proactive
Some expenses on the list above can be lessened or even avoided entirely. You just need to change your financial habits to include preventative maintenance.
By keeping up with semi-annual car tune-ups, you can preserve many of its parts. It also gives your mechanic a chance to identify issues while they’re still minor and inexpensive before you drive on them, making them worse and more costly to fix.
The same applies to household maintenance. By staying on top of your annual chores, you can avoid costly repairs, damages, or replacements to your property.
The Takeaway:
Unexpected expenses aren’t easy to predict and do not follow a schedule. But they do follow a pattern; they usually fall into one of the seven categories shared here today: medical, household, automotive, tech, pet, travel, and gifts.
By understanding that these are the most common unexpected expenses you can face, you’re in a better position to be prepared for them if they do happen. Build an appropriate emergency fund, research a line of credit, sign up for insurance, and take on preventative maintenance. These tips can help you handle the unexpected — even if you didn’t budget for it.
