It’s the end of the month, and you’ve just finished your monthly budgeting. You’re about to give yourself a satisfied pat on the back when your son cheerfully announces how many pennies your dachshund can eat. Three hours later, you’re aware of two things: Your dog will be just fine after surgery, and you’re out $5,000.
About 16 percent of your budget will consist of personal expenses, according to The Nest. This category needs to adequately plan for unexpected expenses as well.
Identify Expected Expenses
Not all of your unexpected expenses are really all that unexpected. An unexpected automobile breakdown could have easily been budgeted for through an auto repairs line item. There are many expenses you can anticipate throughout the year, even if when they occur isn’t clear. This also includes unexpected medical bills, vet visits and home maintenance. You can estimate these expenses by using averages from prior years. If you didn’t track your expenses in prior years, you can make an educated guess at first, and then average things out later. Other types of such unanticipated-yet-anticipated medical expenses include children’s medical costs, dental bills, educational supplies, work expenses and even vacation expenses.
Create a Buffer
Items that you really can’t anticipate fall into a single miscellaneous category. These are one-off expenses that you couldn’t possibly know would occur. Examples of these types of items are damages caused by natural disasters, get-well gifts, unexpected tax payments and emergency room visits. Estimate how much you usually spend throughout your miscellaneous category, and insert a buffer every month for a specific amount. If you plan this amount appropriately, you’ll always have at least that much to spend every month. If you have money left in your buffer at the end of the month, it can carry over to the next month for additional expenses in the next period. It’s always better to have more left over at the end of the month rather than less.
The Proverbial Rainy Day
Create a rainy day fund to ensure you aren’t caught by surprise. An emergency fund should usually be three to six months of your living expenses, and will make sure that you aren’t tapped out in the event that you need to pay a large and unexpected bill. Bank Rate offers five ways that you can start saving for your emergency fund immediately. Usually, a household will want to develop an emergency fund before you start contributing to other savings accounts or retirement funds.
Get Appropriate Insurance Coverage
Many of the unexpected expenses that you will face involve medical bills, property repairs or automobile repairs. ABC News reports that 2 million people in America alone are living in medical bankruptcy. These types of expenses can be avoided through the appropriate insurance. Homeowners insurance, comprehensive automobile insurance and health insurance can all be used to reduce the risk of these bills becoming unwieldy. With the right types of insurance, you will be able to plan for the premiums of your policy on a monthly or annual basis and won’t have to go through the negative effects of large medical bills or maintenance bills.