How to Prepare and Budget for Unexpected Expenses
You’re killing it at your job, your rent is under control and you’re feeling pretty confident in most areas of your life. When you feel secure, it’s tempting to spend what you want. Why not enjoy an extra happy hour or two, or some new clothes, or a fancy meal out?
When you spend what you make without building up your savings account, you can run into some unexpected problems. Most Americans scramble to dip into an emergency fund for household repairs, car expenses and medical emergencies.
Don’t allow yourself to get to a panic mode situation. However financially fit you are, there are always ways to save. If you can save at least three months’ worth of living expenses, you can cover yourself if you lose your job. Save even more, and you can rest easy knowing no matter what type of emergency pops up, you’re covered.
If you don’t have substantial savings yet, you’re not alone. Nearly 30 percent of American households have less than $1,000 saved, CNBC reports. Put these budgeting and emergency preparation tips into practice, and you can feel a little better next time you do splurge.
1. Get Insurance and Warranty Coverage
Maybe you’ve never taken a sick day and always had perfect attendance in school. Or you’ve never needed glasses or had a cavity, so why bother to get extra protection for your teeth and eyes?
Health, dental and eye insurance can be big money savers should you have medical issues. Let’s say you get into a car accident and you have to go to the hospital. You could be paying $30,000 out of pocket for a three-day hospital stay, Healthcare.gov reports. If you unfortunately are diagnosed with cancer, not having insurance could equate to hundreds of thousands of dollars in healthcare costs.
Just like insuring your body is important, so is covering your car. You need car insurance to drive legally, but you should also consider an extended car warranty, especially if you own a used car. Why? Cylinder repairs can cost up to $10,000, and transmission replacement can cost around $5,000. These are just a few examples of repairs you could come across. Compare those costs to paying a few hundred dollars a year for an extended car warranty, and you could save thousands of dollars.
2. Make Savings Automatic
If you have to remember and force yourself to save, that shiny new object tempting you to buy it could win out. Don’t sweat saving. Make it automatic.
Check with your bank to see if they can deposit a certain amount from your checking account into your savings account every few weeks. If your employer offers direct deposit, send a portion of your paycheck directly to your savings account.
Some banks also make it easy to save with everyday purchases. For example, the Keep the Change Savings Program at Bank of America instantly rounds up debit purchases to the nearest dollar. The difference in change is deposited into a savings account.
3. Cut Unnecessary Expenses
You may be surprised at how a few simple tweaks in your spending can help you quickly grow your savings. Pull out your latest bank statements and examine every purchase you made in the past month. Then:
- Identify subscriptions you don’t use. Cancel them, then automate a transfer of what you were paying for them to a savings account every month instead.
- Look for splurge patterns. That $5 coffee run every morning could cost you around $100 a month. Start using your coffee maker at home four out of five days a week, and make one day a week a coffee treat. Put the money that you save into your savings account. You can do similar swaps with drinks and meals out by cooking and hosting more at home.
- Consider the value of each expense. As you go through every expense, ask yourself, “If I could go back in time, would I rather take the cash or make the purchase?” Mindfulness with spending going forward can help you retain control and build up savings.
You can also sign up for an app like NerdWallet, which breaks down your spending in categories, so you can keep checking in on areas where you don’t need to be spending so much. Log into your app daily so that you’re not blindly swiping a credit card with no grasp on how you’re spending.
Growing an emergency fund is like losing weight. If you’re trying to lose some pounds and immediately go on a restrictive, bland diet, you’ll probably crash instead of sticking with it. When it comes to saving, you can still reward yourself every so often. But look at financial patterns you can easily tweak without sacrificing your quality of life.
4. Take on a Flexible Side Gig
If your savings account situation is alarming you and you want to grow savings now, then it’s time to put in the work. Even if you work full-time, technology makes it easier than ever to take on a side gig that fits your schedule. Here are some ideas:
- Drive or deliver food for a service like Uber or GrubHub.
- Offer your expertise in freelance form.
- Sign up to be a pet sitter for a site like Rover.
- Connect with a temp agency and work nighttime or weekend events you choose.
- Become a brand ambassador that represents at special events.
Put any money you earn from your side gig directly into your savings account. Keep living a lean lifestyle as you commit to growing your savings.
Once you have a few months saved in an emergency fund, you can go easy on the extra work. Or, you might end up falling in love with the new experiences you get from working for a variety of clients.
Don’t Get Caught Unprepared
Emergencies can happen to anyone, and they can be expensive. Not having the funds to cover an emergency like car repair or an injury can lead to credit card debt and anxiety. Avoid stress before an emergency even happens by knowing you’re taking steps to build up a healthy emergency fund. Remember to:
- Automate savings.
- Get health, dental and eye insurance.
- Consider an extended car warranty, especially if you have a used car.
- Monitor your spending.
- Cut out unnecessary expenses.
- Stash any extra income directly into savings.
Once you’ve cultivated your emergency fund, leave it alone. Only access it when you have an emergency. And then get right back to saving for whatever comes around next.