4 Unexpected Expenses and How to Plan for Them
According to Oscar Wilde, “To expect the unexpected shows a thoroughly modern intellect.”
While we all know that life can throw us its curveballs, when it comes to personal finances, many of us do not plan for the unexpected. Though you may feel that you are on top of your finances – being able to manage regular bills, ongoing expenses, and saving for your next vacation, etc. – when it comes to paying big bills that you were not planning for, how money fit are you? Could you easily come up with the cash in an emergency? How much?
If the answer is “no” or “not very much,” you may want to rethink your monthly budget and adopt the modern mindset Oscar Wilde spoke of! To help you on your way, here are four of the top unexpected expenses and how you can plan for them.
Medical Expenses
For the most part, many of us take our health for granted. In good health, we rarely think about a scenario in which ill-health would impact our lives in general, let alone our financial lives. While many of us plan for minor health-related expenses like check-ups, dental appointments, and medications, we do not plan for more serious, long-term problems. One of the biggest unexpected expenses that any of us will face in our lives involves medical emergencies. Getting hit by a bus or being diagnosed with a serious illness is not something you can really anticipate, but you should plan your finances as if it is! This expense essentially comes in two waves: direct and indirect costs. Hospital fees, surgical procedures, tests, medications, and anything that directly relates to your illness or injury and recovery will be considered a direct cost. When you become sick, though, your medical bills may not be the only way you are financially impacted. Indirect costs such as being off work or having to buy specialized equipment could also burden you financially.
How to plan for Medical Expenses
First off, make sure your medical insurance is up-to-date and covers you for major medical emergencies. The high cost of healthcare in the US could effectively bankrupt you if you do not have adequate coverage. Normally, insurance alone is not enough to prevent financial catastrophe if your injury or illness is severe enough to warrant time off work. To combat this issue, you should ensure you have enough savings in the bank to cover your bills and expenses for at least three months. Finally, if your injury results from an accident, you may be able to claim compensation if the other part is at-fault. Obviously, you cannot count on this as a saving strategy but you should make sure you know your personal injury claim options should the worst happen.
Household Expenses
If you own a house, you will already know that being a homeowner does not come cheap. Between real estate fees, property taxes, homeowner’s insurance, maintenance, and renovation costs, acquiring and maintaining the home of your dreams is costly. Unfortunately, major expenses do not stop rolling in once escrow closes. Many people plan for minor household repairs and perform maintenance on a yearly basis. Sometimes though, that is not nearly enough. A burst pipe, a broken furnace, or structural damage can happen at any time, and generally, major household expenses are emergency expenses. Often, there is no option to wait until you have saved for repair costs. These issues need to be fixed and fast!
How to plan for Household Expenses
Prevention is the better option here, of course. You simply cannot afford to overlook regular maintenance of your property. When found early, many issues can be rectified quickly and cheaply, so spending a little throughout the year to make sure your home is in good shape will save you a lot of financial headaches in the long run. That said, maintenance will not help you avoid every property-related issue, so you need a plan for such occasions. Homeowner insurance is extremely important and can help foot the bill for your property-related repairs. That does not mean you will be off the hook when it comes to saving. After all, not all major property issues are covered by insurance. Think roof repair, air conditioning unit replacement, periodic exterior painting, etc. If you have not heard of the 1% rule, here it is: save 1% of your home’s value each year for annual maintenance. If you really want to make sure you are covered for household emergencies though, you had better make it 2%!
Auto Expenses
Everyone knows cars and their ongoing maintenance can get pricey. Luckily, for the most part, you can anticipate how much you will need to spend on your vehicle depending on its age. Unless you are rotating them regularly, your 60,000-mile tires will only last about 35,000 to 40,000 miles. If you drive 10,000 miles a year, that means you will need to purchase new tires every three to four years. Batteries and engines also have a limited life expectancy. While you might get unlucky (or lucky as the case may be) from time to time, generally, you should plan to save for repairs that are coming your way. What you cannot do, though, is predict when an accident will happen. With the average cost of repairs amounting to over $3,000, finding the money to fix your car after a collision may be somewhat challenging. And if the accident is your fault, it may not just be repair to your own car that you need to consider.
How to plan for Auto Expenses
There is not much more you can do other than get car insurance! Make sure you are getting a good deal and have an insurance policy that covers all eventualities. Shop around online and by phone. Do not assume that just because you have been with your insurance company for years and years or even decades that you are getting the best deal. Many people can easily cut their insurance premium in half by doing some research online and checking with other companies. As an aside, although you can somewhat plan for ongoing repairs, the best way to plan for them is to prevent them. Much like homeownership, vehicle ownership comes with a degree of responsibility to keep your car or truck in good running condition to prevent small issues from becoming bigger problems down the road… literally.
Funeral Expenses
It may sound like an extremely morbid thing to prepare for (and something you have probably not considered), but planning for your funeral is something you should not overlook. Once you are gone, your family will be tasked with planning your funeral, which is a difficult task indeed for grieving loved ones. Not only that, but the average funeral in the US costs around $9,000, meaning if you do not plan for it, your family will need to find the money or go into a lot of debt.
How to plan for Funeral Expenses
Once you start looking into the costs of cremation urns, funeral service fees, and transportation, you will quickly understand why you should save for this huge expense. You do not want to burden your family with the expenses. If you prefer, you can actually plan your funeral ahead of time by paying for certain elements of your funeral now rather than adding funds to a savings pot. Alternatively, you could opt for funeral insurance which would pay out a lump sum to your family in the event of your death. Funeral insurance is more specific than life insurance, and you should read and understand any policy thoroughly before signing up. In the long run, no matter how much you plan, there will always be unexpected events (and unexpected expenses) that come your way. All you can do to mitigate your risk of being dramatically impacted in your personal and household finances is to prepare the best you can. Simply put, ensure you have insurance for eventualities and save as much as you can for expenses not covered by insurance.