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The Really Quite Good Guide to Unexpected Expenses

The Really Quite Good Guide to Unexpected Expenses

Unexpected expenses are like a mosquito quietly trying to attack you.  The expenses leave you itchy, in a little pain, and certainly in the irritable category.  So how do I stop unexpected expenses?

We all have had unexpected expenses.  

The medical bill that you surely didn’t see coming.  I mean lots of people trip walking up the stairs and require wearing a boot for the next six (6) weeks.  Then receive a medical bill with an amount that makes you wonder why me!

The new cell phone.  Because I dropped it and need a new one ASAP.  You see my life it’s actually attached to the very cell phone that’s broken and well I need a new one or I could very well die in the next 24 hours.

The routine oil change where the mechanic casually mentions that you need to fix X, Y, and Z or face certain death should you leave with only the oil change.  X, Y, and Z are the approximate Kelly Blue Book value of your vehicle.  Fix My Lighthouse! You know FML;) 

Unexpected expenses or what I like to call “this INSERT EXPENSE(S) never happens”.  

It’s tough to start or stay on your plan when all these “that guy came out of nowhere” expenses happen.  You cannot stop unexpected expenses, but you can plan for them.

❔Tough Question You Must Answer❔

Here’s the tough question that we have to ask.  How am I supposed to create a plan and follow this plan if all of these unexpected expenses keep happening every month?

I don’t know the future and I’m guessing you don’t either.  Here’s the thing you know way more than you think.  Now do you have all of your expenses mapped out and written down so you are expecting the unexpected?  Probably not so let’s start!

The best way to brainstorm is to separate the expenses into three (3) main categories:

  1. Annual Expenses 
  2. Occasional Expenses
  3. True Emergencies 

Plan ahead.  This way you’ll only have to face a couple surprises when it happens.  For most of the expenses you can hit the easy button.  Ok let’s tackle those unexpected expenses.

📅 Unexpected Annual Expenses

Annual expenses happen and in fact they happen every year.  Did I just explain the definition by using the word, my English teacher would be so pissed at me right now.  

These often include car registration renewal, Amazon Prime, pet fees and vet visits, and all those birthday presents for family and friends, and of course Christmas.  The list seems endless but here’s a few more examples from US News.

Amazon Prime

Amazon Prime an example of an annual expense

The good news? These expenses happen every year, so you likely know how much these things cost.

For example, Amazon Prime membership happens every year, I know because I pay for it.  If you pay this as an annual expense then it’s easy to go back and either check Amazon or your bank/credit card statement to see when it gets charged.  I see you coming May 31st, 2021!!!

👷‍♀️Pro Tip:  Amazon Prime gives you the option to pay either $119 annually or $12.99 a month.  If you choose to pay monthly the total bill comes out to $12.99X12=$155.88 or an additional $36.88.  Choose the annual option and save.

👻🍗🕎Happy Holidays🎅🎄🎊

The holidays are everyone’s favorite time of year.  Besides your wallet, purse, and credit card statement.  They HATE the holidays.  

It’s harder to get an exact total for the holidays because of the numerous transactions and activities. 

Of course you have to buy for your boss because I mean the holidays and well she decides your bonus let’s not get coal for her stocking.  

Plus add in the two (2) Christmas family events, holiday parties you need to attend, secret Santa🎅, and visiting the in-laws in New Mexico. 

Plus there is this friend of yours who always gives you an expensive gift but you are pretty sure she’s a trust fund baby and secretly wants to throw it in your face how much money she has.  No you won’t Clarice, I will top your present🎁 even if I have DIY the ish out of it!

👼Perfect is the Enemy of Progress👼

It’s important to have a base number for your annual expenses.  It doesn’t need to be exactly what you spent last year but it’s certainly a good starting point. 

Because last year is certainly different than this year so it’s ok to have a different number to save for as well.  The most important piece of the puzzle is to make it a realistic number that you approve of and can fit in your saving and spending.

Once you have dollar amounts for all the annual expenses you can think of, take each annual expense and divide it by the number of months until that unexpected expected expense is due.

Using my Amazon Prime Example (Jeff Bezos is not paying me for talking about Amazon) I need $119 by May 2021 which is eight (8) months from now.  Divide $119 by 8 months Result: $14.88 per month. Then, once you’ve paid that bill, you’d recalculate it for the upcoming year or 12 months which would be $119/12 = $9.92 per month.

🤞Unexpected Occasional Expenses

Many of these expenses occur when you least likely expect it, but they happen.  It’s hard to know exactly when you will need the money but at some point you will.  

Items in this category include:

  • The dreaded a light came on in my car and I know it’s going to cost me money aka the car repair.
  • Electronics break sometimes or you lose them.  Computers crash, chargers disappear, phones shatter, and a whole host of things happen.  
  • If you own a home you know occasional expenses happen all the time.  Many times you will find yourself paying for a plumber to fix a leak, HVAC for all of your heating and cooling needs, and the occasional random repair that comes along with home ownership.

This is an unexpected expense article and it goes without saying but here I am saying it anyways you won’t know when and how much these expenses will cost and when they will happen.

But like I share with my financial coaching clients if we start saving for these items today over time we will be vastly more prepared than not saving at all. 

🥊Punch in the face or the stomach🥊

I refer to this as would you rather be hit in the face with an unexpected expense and get knocked out or get punched in the stomach and get the wind knocked out of you for a few seconds?

Not having any savings is the punch in the face.  Having some savings for the unexpected expense is the punch in the stomach.

Here’s a great example from my own personal finances.  We own a 2007 Toyota Sequoia with over 100,000 miles.  The Sacagawea as she is affectionately known is almost certain to need some small or large maintenance during the year.  

What we do is save a little bit each month towards the future expense that we know is coming.  In fact the last time we brought our vehicle in for maintenance the mechanic informed us of a future expense that would cost almost $2,000.

Now that sounds like a lot of money because frankly it is.  However what we have done instead is save $200 towards our vehicle maintenance this year.  Now when I take my car in for maintenance I will have saved myself from getting knocked out and instead will take my soft marshmallow like punch to the stomach in stride.

You can do this with any occasional expense item.  A strategy I implore is to transfer each month to a separate savings account.  My preference is Ally bank because it allows you to have one (1) savings account but create separate savings account buckets.

👷‍♀️Pro tip:  Don’t keep this amount in your regular checking account.  Like cookies in our household if you buy them I will eat every single one.  Similarly this is keeping money in your checking account, you will spend every single dollar.  

👷‍♀️👷‍♀️Double pro tip:  Don’t commingle this with your regular savings or emergency fund account because it creates a false narrative.  Pretty soon the money that you set aside for the fun vacation to Las Vegas is instead putting tires on your car.  If this were me I would cry both on the inside and the outside.  

🚒Unexpected True Emergencies

The moment in time that is completely unexpected and usually costly.  The true emergencies often consist of losing a job, major medical expense, or a major expense for a vehicle or home damage that usually involves a deductible.

True emergencies are difficult and you will need to rely on the emergency fund that you have built.  Many personal finance experts recommend three to six (3-6) months of living expenses.  For me this number varies based on your personal situation.

Six months of expenses can certainly feel like a large amount.  Building an emergency fund to cover six (6) months of expenses is not something you do overnight.  

If you spend $5,000 per month in expenses and feel comfortable with a six (6) month emergency fund that’s a total of $30,000.  Building an emergency fund of that size is doable.  It takes time but having a plan to get there will make the true emergency that much less scary.  

Like anything in life that is worthwhile it takes time.  But once you have a plan for unexpected expenses it truly can make all the difference in your financial life.  It just might help you sleep better at night and who doesn’t want to sleep better at night?!

This post was motivated by Be Awesome Not Broke, cheers!

👀Do you have a plan for your unexpected expenses?

We all have big hopes and dreams in our life and a set of financial goals to go along with them.  Don’t let unexpected expenses derail those hopes and dreams because you don’t have a plan.  Click on my face below to learn more…..

Even Steven Money Steven Donovan Money Coach

Check out my financial coaching page to learn how I can help.  Schedule a free discovery call and let’s talk virtual face to virtual face.

 

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(2) comments

A lot of these unexpected expenses are actually to be expected. Like you know that your Amazon Prime fee will come and you can even expect that most things will break at some point. It’s just because people don’t think ahead that they are taken by surprise

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    Steven Donovan

    Exactly Jennifer it’s all about planning ahead so you don’t get surprised.

    Reply
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