Unexpected expenses are an unfortunate fact of life, and they always seem to crop up at the worst of times. Whether it’s a broken-down car at Christmas, a sudden veterinary expense or the death of a family member, costs can quickly add up and put a real strain on your budget.
It’s an unpleasant situation we’ve all been in, and having to quickly get together a large sum of money in a short amount of time is stressful for all involved. The good news is with a little budget managing each payday, you can be better prepared for when that next sudden expense pops up.
When you’re not in the financial position to make credit card or personal loan repayments, you’ll be hard-pressed to find a lender to assist you, and debts can easily become unpayable. It’s often the case that unexpected expenses come with a large amount of emotional significance, such as in the cases of major house repairs or sudden surgery following an accident.
Making payments towards these can become more imperative than mortgage or rent repayments, which only adds more debt to the pile. Filing for bankruptcy in these situations can lead to feelings of shame or failure.
The importance of a rainy day fund
In extreme cases, an unexpected expense could lead to homelessness, when other expenses in addition to the continuing payments you usually have are unable to be met. Homelessness could mean living in your car, being forced to move back in with relatives or sleeping on the streets. It could happen to anyone at any time if they don’t properly prepare for the future.
Putting into place some budgeting methods, creating a rainy day fund, and even saving all your coins in a jar are ways of financially preparing for the unexpected. By putting a plan into place and getting inspired by the following tips for common expenses, you’ll be a step ahead and ready with an umbrella on your next rainy day.
Engine problems or an accident where you’re at fault can lead to debts racking up fast, with car damages costing $1000 and upwards in repairs. A good way to prepare for any issues with your vehicle before they happen is to ensure you stay on top of regular car maintenance for peak performance.
Cars running smoothly lead to less regular breakdowns, which means you’re paying less at the mechanic less frequently. Making sure your car insurance payments are on top or a little in advance will save any stress if you’re in an accident and your car is damaged. Paying a little each month is a much more manageable method than being suddenly hit with a $6000 bill that is due immediately.
Without regulated costs in the medical industry, a medical emergency can end up costing thousands of dollars very quickly, particularly if you don’t have private health insurance. Ongoing costs of programs such as chemotherapy or blood transfusions can lead to further stress when you’re already dealing with a medical issue.
Maintaining a healthy lifestyle can help you avoid future issues, and paying into a medical insurance option each week or month ensures that should the worst happen, you’ll either pay less or nothing at the time when it’s needed.
Major home repairs
Many new home buyers fall into the trap of not preparing a budget for home renovations or future repairs, leading to houses half-finished or living in potentially dangerous residences whilst they struggle to repay a repair bill.
At the same time, houses can easily fall into disrepair as we age with them, and that cracked ceiling might be a bigger problem down the line than first thought. Making sure you set and stick to a home maintenance budget and routine lines you up for lower costs in the future should something go wrong.
Death of an immediate family member
It’s already the worst-case situation when someone close to you passes on. The staggering prices of funerals, cremations, and churches that need to be paid when someone passes on can feel like an extra sore spot whilst you’re trying to grieve.
Even civil funerals carry costs of $500 and up, and the death industry has almost as many add-ons as the wedding industry. Taking out life insurance so your loved ones don’t have to be passed over this debt, and having the same coverage yourself, gives that extra peace of mind.
Budget for the unexpected
As with all our tips above, it rings true that preparing for the future now is the best way to ensure the future runs smoothly with no sudden expenses that can’t be paid. Creating a rainy day fund, reading into the best insurance policies for you and generally making smaller payments now to avoid bigger payments later means you can relax into your older years knowing you’re one step ahead.
Luke Fitzpatrick is a guest lecturer at the University of Sydney, lecturing in the Pre-MBA Program and Cross-Cultural Management. Connect with him on LinkedIn.