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Planning for Unexpected Expenses

How many times have you had to scrape together some cash by skipping a savings deposit, pull out a credit card or take out a loan for an expense you consider “unexpected”? Most of our seemingly unexpected expenses are actually recurring, known expenses – but because they are not a monthly bill, many people overlook them when budgeting or managing their finances.

Typical “unexpected” expenses that should actually be planned for include:

  • car maintenance (new tires, brakes, oil changes, insurance premiums, etc)
  • school and property taxes
  • holiday gift giving
  • higher electric bills in the summer due to air conditioning / heating bills in cold months
  • home maintenance (roof, windows, furnace cleanings, etc)

How to Plan for the Unexpected:

Even when an expense does not require a monthly payment, you should plan for it in your monthly budgeting efforts. That way, when the payment or repair needs to be made, you'll have the money set aside and ready to go.

For example, if you pay $3500 a year in school and property taxes, divide the total by 12 months to determine that your taxes are actually costing you $291.66 each month. Set up a preparation savings account (or better yet, a Money Market Account with high interest, as you will not have many withdrawals to worry about) that is used to prepare for your non-monthly expenses and each month, transfer $291.66 to the account. When the tax bill comes, you'll be able to withdraw or transfer the money to make the payment.

You can do the same for all of your non-monthly expenses. Go through old check registers or your online bank statements to make a list of things you pay. Take the average yearly amount and divide by 12 to determine how much it costs you on a monthly basis- and simply set that money aside to save for it.

Jeremy   |     |   Comment #1
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