This time of year, family budgets are already strained by holiday giving, travel, and entertaining. The last thing anyone needs is an extra bill for the furnace going out, a big car repair, or an expensive trip to the emergency room.
Payments like these are common budget-busters. They come under the category we usually think of as “unforeseen,” “one-time,” or “unexpected” expenses. We tend to be surprised by them. I hear clients say things like, “These are the expenses I feel are out of my control.”
But are they? Should it really come as a surprise that houses, cars, and human bodies need maintenance over time? That water heaters, roofs, and furnaces do not last forever? That tires wear out? That people get sick and have accidents?
Being unable to manage unscheduled costs like repairs and medical bills is one of the biggest reasons people give for being unable to follow a spending plan. Even if items such as “maintenance” and “medical expenses” are included as budget categories, most people don’t follow through and create savings accounts for these “unforeseen” expenses that are so very predictable.
A spending plan, by its very nature, requires anticipating these “surprises.” The idea is to deposit the budgeted amounts into a savings account on a monthly basis. This will insure that the money is there when the “unexpected” happens. The biggest resistance to doing this is having less to spend on lifestyle expenses: eating out, entertainment, clothes, etc. However, not funding these predictable “unexpected” expenses is painful evidence that people are probably living beyond their means.
If you chronically have trouble covering expenses like these, here are some suggestions:
• Change your definition. Instead of thinking of repairs, medical expenses, and the like as “unexpected,” begin to describe them as “intermittent” or “unscheduled” expenses. Don’t let them surprise you. After all, you may not know precisely when they’re coming, but you do know that sooner or later they’ll show up.
• Take an inventory. Go through your checkbook register or bank statements and find out exactly what you’ve spent over the past 12 months. You can’t move forward until you know where you’re starting from. It’s essential to create a spending plan based on what you actually spend, rather than what you’d like to believe you spend or what you think you should spend.
• Look to the future. Get down in writing what you expect to spend in the next 12 months—including those unscheduled expenses that you know perfectly well are going to pop up at inconvenient times. Be as realistic as you can about these costs. If you over-budget for them, you still come out ahead, because you’ll end up with extra savings in the bank.
• Start small if you need to, but start. If you’re just getting by from paycheck to paycheck, setting money aside for unscheduled costs isn’t easy. Yet putting money away for future expenses is an essential part of breaking out of that month-to-month trap and beginning to get ahead. Take a cold, hard look at your expenses with an eye to finding a few extra dollars here and there that you can put into savings. Even small amounts will make a difference.
Developing the habit of expecting the “unexpected” is one of the differences between those who manage their money consciously and those who seem unable to quite catch up. Planning for unscheduled expenses goes a long way toward reducing financial stress. It can help you make sure your holiday surprises are wonderful ones under the tree instead of painful ones over your budget.