What are life’s unexpected expenses that could leave you in the red?
An unusually cold and wet winter could mean leaks in your 20-year-old roof or worse still water in your basement. An extremely hot summer and your central air breaks down from over-use. That’s also around the time your car decides it needs a new transmission. Whatever the circumstances, unexpected expenses are unexpected for a reason. The solution is to plan and be prepared for them by making sure you’re saving enough money every month for these sudden surprises that could leave you with massive credit card debt. Unexpected expenses aren’t always house and car related – you could have incurred more medical and dental bills than you anticipated or it’s a year with more than normal special occasions and gifts to buy. The list is endless. Staying on top of it will help you sleep better at night knowing your “savings” are there to help you out in a pinch.
WEALTHplan has put together a 5 step plan to help you budget & save for unforeseen expenses:
1. Make a list of your unexpected expenses. An easy way to identify them is by going through your calendar for the past year along with your bank and credit card statements to see what you paid for that was unexpected.
2. Once you have a list of all the “surprise” expenses you had for the year take a look and make a list of all your regular monthly payments (the ones you know you’re going to have month by month) such as water and heating bills, property tax, car and home insurance.
3. Add up both your regular expenses and the “surprise” or unexpected expenses you had for the year and then divide the number of months in a calendar year. For example, if your unexpected and regular expenses added up to $5,000 you will want to divide $5,000 by 12 to give you a total of $416. That’s the amount you’ll need to have in your monthly spend budget that will allow for both regular and unforeseen expenses.
4. Now that you’ve done the grunt work take advantage of digital tools like You Need A Budget or Mint to help you create a household budget, stay on top of bill payments and make sure you stay on track.
5. Saving an extra $416 or whatever your monthly amount is may be hard at first so look at some indulgences that you can cut out for the time being. Do you really need that $7.00 latte every day? Curbing your impulse buys is also a great way to save some extra cash.
Remember “saving” money doesn’t necessarily mean you have to stop spending all together. It’s just a way to ensure you don’t get caught without the necessary finances when an unforeseen expense pops up. There are different reasons to save money. Identifying and setting up financial goals is the first step in ensuring your financial wellness in the long term. What you decide to spend your money on later is entirely up to you and having a plan will help to avoid making bad decisions and incurring “bad debt”.
If you feel that it’s all too much for you to get a handle on, a financial plan by an advisor customized to your needs and with your goals in mind is a great way to get started. You’re never too young and it’s never too late to start. If you’re still unsure and want to just test the waters WEALTHplan has made available a number of interactive questionnaires suited to different savings goals. Whether you’re saving for your child’s education, saving for a rainy day or simply saving for your retirement these handy questionnaires are a quick and easy way to get you moving in the right direction.