The heater in your house broke down overnight and now you have to get a new one.
A tire goes flat in the middle of the highway and you need a tow.
You have to make an emergency stop at the hospital because all of a sudden your child sprung a fever.
You have to make an unexpected trip to visit a sick relative.
Unforeseen expenses are inconvenient and uncomfortable. The reality, however, is that they happen from time to time. Therefore, it is better to be prepared for it rather than allow it to ruin your mood or overall financial situation.
In this post, we are going to uncover five top tips from money experts for dealing with unforeseen expenses.
Have a Money Buffer Built into Your Budget
Have a money buffer built into your budget.
Del Shawn Hayes is a financial coach who helps her clients master the budgeting process.
She gives the following advice: “My number one tip for handling unforeseen expenses is to have a cash buffer built into your monthly budget. I have my clients keep a certain amount (based on their income) in their bank accounts to cover unforeseen expenses at all times. Doing this will help you cover the cost of that flat tire.”
This is such smart advice for several reasons:
- You will not have a big emergency come up each month. Therefore, building a buffer means that the buffer will grow with each consecutive month.
- Most unforeseen expenses are actually small ones — the trip to the ice cream shop or that dress at Target you had to have. These little expenses are easy to hand-wave away with a, “Oh, but it’s just $10.” The truth, however, is that those little expenses add up. Having a buffer ensures that you still are able to do this type of spending without worrying that your budget will be severely affected.
Use Your Emergency Fund
Phylecia Jones of Keep Up with Mrs. Jones says, “If you have an emergency fund, just use it without thinking twice. The purpose of an emergency fund is to help relieve the stress of unforeseen expenses.”
Another case for starting an emergency fund!
According to a survey by Bankrate, even though unemployment is at one of the lowest points since the 2008 financial crisis and wages have seen a slight increase, 65% of Americans still do not save.
Furthermore, only 39% of those surveyed reported having $1,000 for their emergency fund to cover the cost of unforeseen expenses.
Starting an emergency fund does not have to be complicated. If you want to get started with one, here is how to go about it:
- Set a goal. How much would you like to be in this emergency fund? $1,000 is typically a nice low number a majority of us can aspire to. The key here is to pick a number.
- Look at your income right now. How much can you realistically put away each month into this emergency fund? $20, $50, or $100? Don’t worry so much about the amount as much as the consistent progress that will help you reach your goal.
- Make that amount a budget item and commit to putting it away each month.
To sweeten the deal, you can put the money in a savings account that pays interest on your balance each month. This will add some extra income each month to help edge you towards your goal.
If You Don't Have an Emergency Fund, Don't Panic
“If you find yourself short on money and without an emergency fund, the first thing is not to panic.”
“Take a few breaths and then look at your current financial situation. Determine if you can cut some expenses or generate some quick income to cover the unforeseen financial burden.”
This was another tip from Phylecia.
If you don’t have a buffer and you don’t have an emergency fund, the next best thing is to think of an item on your budget that can be skipped for the month.
Yes, it does mean things will be a little tight for a month or two but it will help get you through the moment.
Start a Side Hustle
This is a tip from yours truly.
While a nine-to-five job is always a good source of income, depending on where you live and your special life circumstance, the salary from your job may not be enough to cover all your expenses.
Instead of getting yourself in more debt by relying on credit cards and personal loans, you can start a side hustle to generate income that will cover extra expenses.
A side hustle is also obviously important to this conversation we’re having because having one means that when there is an unforeseen expense, you will be able to cover it easily.
Enroll in/Take Advantage of Cost-Saving Programs
Last but not least, enroll in cost-saving programs so you don’t have to pay each time something happens.
Below are a few examples:
- Sign up for AAA. If you live in the United States or Canada, you can sign up for AAA (also commonly called “Triple A”). For a yearly AAA membership, you can get free roadside assistance 24/7 including towing, flat-tire service and locksmith services in case you lock yourself out of your car. Your car insurance company may also have roadside assistance that reduces your emergency costs for a problem on the highway.
- Sign up for travel rewards programs. Save on travel in case you have to book an emergency flight to visit family. Find the best travel rewards cards here.
- If you have home or renter’s insurance, call them to find out what gets covered in case of a mishap at home. They may be able to help you with moving out of your home to stay at a hotel, for instance. You will not know unless you find out!
Unforeseen expenses are annoying and inconvenient, but they are bound to happen. You can reduce the impact of the unforeseen expense by preparing for it.
In this post, we went over five expert tips on how you can shoulder unforeseen expenses without it significantly messing up your financial situation.
Your thoughts are welcome in the comments.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.