How To Prepare For Unexpected Expenses
JA
Summary:
Though you can never truly anticipate unexpected expenses, you can prepare for them by building up your emergency funds. To increase the amount of money you can set aside in your emergency fund, live below your means and automate your savings as well.
Unplanned expenses can throw our lives into a chaotic spiral if we’re not prepared. They usually appear in the form of repairs we didn’t anticipate, expensive medical bills, large purchases like a new car or appliance, or something we need immediately but wasn’t factored into our budget.
According to the Federal Reserve’s 2021 Economic Well-Being of U.S. Households Survey, around 32% of adults say they can’t cover a $400 emergency expense using only cash or its equivalent. In other words, millions of Americans are not adequately prepared for a financial emergency, putting them at risk of serious trouble should such a crisis arise. This stat is especially concerning given that many unexpected expenses, such as car repairs and medical emergencies, often come with larger price tags than this baseline.
In this article, we’ll take a look at some of the most common unexpected expenses, how much each may cost, and how you can plan for an unexpected expense.
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What qualifies as an unexpected expense?
Unexpected expenses are exactly what they sound like: Payments (large or small) for events that you couldn’t budget for or anticipate. This isn’t the same as, say, property taxes or an annual doctor’s visit. While infrequent, an annual visit is planned and can be budgeted for. Unexpected or emergency expenses are costs that, while you can save up for, you could not plan for.
Here are some of the most common types of unexpected expenses you should be aware of and actively prepare for.
1. Emergency medical expenses
The potential costs associated with medical emergencies can be staggering. Even a single hospital visit can cost thousands of dollars, and if surgery or inpatient care is needed, the final bill could exceed tens of thousands of dollars.
For this reason, it’s important to be prepared for any potential medical emergency that may come your way. You can do this either through budgeting for unforeseen medical costs or having adequate health insurance coverage.
How much it can cost?
- Anywhere from $150 to $3,000 per emergency room visit for those without health insurance
- Around $5,000 to $12,000 in out-of-pocket expenses for cancer treatments (even with standard insurance)
- Approximately $30,000 for a 3-day hospital stay (without insurance)
2. Auto repairs
Auto repairs can come at unexpected times and throw a wrench in your budget. Car accidents, engine failure, or the natural wear and tear of a vehicle can all lead to expensive auto repair bills. Plus, many car parts are delicate, meaning that if one breaks down or stops working, it can be costly to fix.
How much it can cost?
Auto repair expenses can vary depending on what you need fixed. While some parts can be easily purchased and changed by yourself (such as an air filter), other repairs may result in a larger bill.
- Replacing a transmission: $1,000 to $6,000
- Roadside assistance service: $35 to $600 per tow
- Flat tire repair: $50 to $750 per tire
- Brakes: $350 to $850 per axle
- Power window repair: $150 to $1,500
- Ignition switch replacement: $100 to $400
- Door lock repair: $200 to $600
3. Unplanned travel
Whether it’s for a job opportunity, an illness, or to reunite with a long-lost loved one, the need for unplanned travel can create a financial burden. Plus, traveling last minute can be especially expensive, since flights and hotels often come at rates far higher than if booked in advance.
How much it can cost?
The cost of unplanned travel varies significantly depending on the time of year, mode of transportation, and where you’re going. If, for instance, you need to spend a weekend in Manhattan and you’re flying from Los Angeles, here’s what your travel expenses could look like:
- Round-trip plane ticket from Los Angeles to New York: $300
- Hotel for two nights: $200
- Eating out for two days: $80
- Taxi to and from airport: $100
- Other expenses, such as entertainment and laundry services: $100
4. Major home repairs
Unplanned expenses can be a real headache, and one of the most disruptive and expensive kinds is major home repairs. Whether it’s in your kitchen, bathroom, basement, or anywhere else — these repairs can cost thousands of dollars and require extensive labor.
Some damages might occur due to natural wear and tear, but some could also happen because of accidents like a burst pipe or fire. And while homeowners insurance can help with some of the cost, it won’t pay for everything.
How much it can cost?
Similar to car repairs, household expenses can vary depending on what repairs are necessary.
- Upgrade or replace an electrical panel: $1,224
- Remove standing water: $3,479
- Water heater repair: $591
- Install or replace a tile roof: $16,898
- Repair laminate flooring: $1,068
5. Vet bills
Vet bills for emergency care, follow-up exams, medication, or surgeries can add up fast. And while no one wishes illness or injury on their furry friend, it’s important to be prepared and have the means to pay for vet care if your pet falls ill or gets hurt.
Thankfully, there are options out there to help reduce the financial burden of unplanned vet bills, such as pet insurance and payment plans at some clinics and hospitals.
How much it can cost?
Here’s how much it could cost to treat some of the most common pet emergencies without insurance:
- Three to five days of hospitalization and monitoring: $1,500 to $3,500
- Wound treatment and repair: $800 to $2,500
- Ultrasound: $300 to $600
- Birthing difficulties (caesarian section): $1,500 to $3,500+
- Heatstroke: $1,500 to $6,000+
- Basic blood tests: $80 to $200
- Emergency surgery: $1,500 to $5,000
How to budget for unexpected expenses
Though it’s almost impossible to predict when an unexpected expense will occur, being proactive and getting in the habit of planning for the unknown will put you miles ahead when an emergency does arise.
1. Set up an emergency fund
Unexpected expenses can cause significant financial and emotional stress. One way to ensure that unplanned expenses don’t derail your financial well-being is to create an emergency fund. Since covering common unanticipated costs like medical bills, car repairs, travel, or pet emergencies can be challenging, an emergency fund could give you the security of knowing you have a reserve of money tucked away to cover any unforeseen needs.
So, how big of an emergency fund do you need? Most financial experts recommend saving up at least three to six months’ worth of living expenses. So if you currently spend around $1,500 to maintain your lifestyle, you should aim to have at least $4,500 to $9,000 set aside in an emergency fund.
2. Live below your means
To save money and build up a budget for unexpected expenses, you must make more than you spend. In other words, you have to live below your means. Taking the time to carefully plan your spending, review incoming bills, and compare prices when shopping can help you allocate money more strategically and avoid going beyond your budget.
Pro Tip
If you’re struggling to keep track of your spending, consider using a budgeting app like Mint or Personal Capital. This way, you’ll have a clear idea of where your money is going each month. To ensure you’re getting the best money management tool for your spending habits, compare your options below.
3. Automate your money
If you’re looking for an easy way to make sure you always have sufficient funds on hand for an unexpected expense, automating your savings is the way to go. By signing up for automated savings, you’re more likely to reach your budgeting goals since the money is removed from your account before you have the chance to spend it.
Automating your savings also simplifies the entire budgeting process, since it usually requires no additional steps from you after setup. If your current savings account doesn’t offer this feature, take a look at some of the savings accounts below.
Should you borrow money to pay for unexpected expenses?
Borrowing money to cover unexpected expenses can be a smart move if done properly. There are several borrowing options available, including a personal loan, credit card, home equity lines of credit, or second mortgage.
Do your research on the interest rate associated with each option and make sure you understand all the terms and conditions. This can help you avoid exorbitant interest charges over time. For instance, unless you use a card with a 0% APR introductory period or know you’ll have your credit card paid off by the next statement, don’t rely on a credit card for an unexpected expense.
Also, to get the best deal, compare multiple lenders and shop around for the lowest interest rates available before making a decision. Fortunately, you can do that all from one location. To get an idea of how SuperMoney compares lenders, take a look at some of the personal loan lenders below.
FAQs
What are the types of expenses?
There are typically two types of expenses that occur in our day-to-day lives: expected and unexpected. Expected costs generally come from monthly bills, annual bills, rent, food, and other necessities. In other words, they’re usually expenses we can budget for since they occur on a regular basis.
On the other hand, unexpected costs typically come in more unpredictable ways — surprise medical bills, a broken appliance, car trouble, or a last-minute trip to visit family.
What is unplanned spending?
Unplanned spending is the same as unexpected expenses. It involves any financial emergency or expense that was not anticipated or budgeted for in advance, including a surprise car repair or a tricky medical bill.
What is unexpected expenditure in business?
Unexpected expenditure in business is any expense that isn’t part of the company’s regular budget. Some examples include repairs or replacements of equipment, emergency personnel expenses, unplanned travel and marketing investments, or unexpected legal costs.
Understanding and preparing for these unforeseen expenses can help business owners create more realistic budgets and adjust their strategies accordingly.
Key Takeaways
- Some common types of unanticipated costs include medical emergencies, auto repairs, unplanned travel, vet bills, and major household expenses like home repairs.
- The best way to handle unexpected expenses is to build up your emergency savings so that you always have extra cash on hand.
- If you can’t cover unplanned expenses with your emergency fund, you could consider borrowing money through personal loans, credit cards, or HELOCs. Just be sure to do your research beforehand and borrow responsibly.
Prepare for unexpected expenses with the right tools
While it’s possible to recover from one modest financial setback, having multiple unexpected expenses hit all at once can be catastrophic. So if you haven’t already, start building an emergency fund to prepare yourself for the unforeseen expenses that could come your way. Even just putting away $50 each month can add up over time and make all the difference during difficult times.
If you need help setting aside money for your emergency fund, consider using these personal finance apps to help you reach your savings goal. In addition to that, you can also start building an emergency fund in a high-yield savings account, which helps you earn a little extra interest on your funds.
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