Oh, those pesky unexpected expenses! You know how it is. Your financial life is going along just swimmingly, and then you get a medical bill. Or your car needs a repair. Or your heat pump needs to be replaced. Or your work dress code changes and you need a new wardrobe.
And then you’re in trouble. You can’t decide not to fix your car, and unless you live in a really temperate climate, you kind of do need to have a heat pump. So, you end up pulling out a credit card and boom! You’ve got yourself some high-interest debt to deal with.
It doesn’t necessarily have to be this way, though. Unless you’re woefully under-employed, you can avoid financial disaster when these types of bills hit your mailbox.
There are two main things you need to remember:
1. Expect unexpected expenses
Here’s the thing: while the timing of things like car repair bills isn’t predictable, you can be almost 100% sure that you will have car repair (and maintenance!) bills at some point. And you may not know when you’ll need a doctor, but you can be quite sure you’ll need medical care at some point.
Don’t let the mysterious timing of these expenses keep you from preparing, though. When you’re setting up your budget, you need to account not just for your regular monthly expenses but also for randomly timed expenses.
I’ve already mentioned a few examples, but here’s a more complete list for you to think about.
-Expenses that are billed annually, semi-annually, or quarterly (such as car insurance, vehicle registration, and some utility bills)
-Home maintenance/repair costs
-Tech repair/replacement costs (cell phones, computers)
2. Live beneath your monthly expenses
If you spend everything you make each month, you’ll stay out of debt without a problem.
That is, you will until you get an “unexpected” bill.
When your monthly outgo is the same as your inflow, you’re living on the edge of disaster. All it takes is one unfortunate turn of events, and you’re in the hole financially.
To protect yourself from this, you need to have a monetary cushion in a savings account. But to get that cushion going, you’ve got to spend less than you make.
I know this is tough when you don’t have a high income, but considering the disastrous consequences of credit card debt, you should be ruthless in your efforts to live below your means. Move to a cheaper home, take on some extra side work, and get rid of extra expenses in your budget (cable TV, eating out). Limit your shopping, buy second-hand when possible, and think hard before you spend money on something. Do whatever you can to create some wiggle room in your monthly budget.
Preparing for unexpected expenses takes forethought and discipline, but it’s a small price to pay for freedom.