While a budget in one form or another is a must-have financial tool, it’d quickly become big and ugly if you tried to anticipate and include every expense you might run in to. You’d quickly lose interest and wouldn’t stick with your budget, right?
A budget is a basic recorder of recurring expenses, and trying to cover a purchase you didn’t foresee is like fit a round peg into a square hole. Unplanned expenses happen to everyone though, so what we can do about them?
Anticipate the expense
This sounds counter-intuitive to the rest of this post, but you don’t need a magic 8-ball to do it. If you’re aware of the next time your car is going to need an oil change, you can set aside that money in your budget to cover it. That way you don’t step up to the counter to pay for it while wondering where that money is going to come from.
Setting aside $30 or $50 each month for unplanned expenses will help you cover those little repairs or fees you might run into. and you’ll have even more on hand if you don’t use it during the month.
Lock down your emergency fund
This is extremely important. You are the only person who can determine what you consider an emergency, but don’t run for cover the first time you run into a problem. Your emergency fund shouldn’t be the first place you go when you find yourself short a couple of bucks, it should be the last.
Cut back In other areas of your budget
Did you plan for three tanks of gas this month but ended up using only two? Don’t spend that money on just anything, move it over to cover an unexpected expense. If you’re living within your budget, you’ll probably find that you’ll be able to do this quite often. When you have months where everything runs smoothly, you’ll be able to save that cash!
Make extra money
If you’ve got the time and the desire you could earn a couple extra bucks to meet your needs for that month. Are you going to babysit for your neighbor, or have a garage sale? That extra income can help you when you don’t have another way to pay for something.
Find another way
Can you borrow the item you need? If you can get someone to loan you the item you’re considering purchasing, you can keep from incurring another expense. Taking a bit of time to consider your options and see if there’s another way to solve your problem may help you save money.
Unexpected expenses are a major factor of what I call “the month-to-month monster,” living paycheck to paycheck. If you can work to reduce the impact of these purchases on your budget, you’ll be able to strengthen your financial foundation and get to the point where you can begin to establish real wealth.
Updated December 22, 2011 and originally published July 9, 2009.
{ 8 comments… read them below or add one }
I had a recent car issue that cost me almost $700. I have a vacation/emergency fund set up that I would love to separate at some point if I earned more money. For now though I had to dip into it and scratch off some vacation money for the repair. I was happy I had it available.
I have a small “unexpected” section in budgeting and always carry it forward from one month to the next month, the purpose of it is to cover some unexpected smaller expenses such as car repair etc….so far worked well havent had to use it too much so building up pretty well.
My favorite way to make money is to reduce my expenses. I am saving at least a $1,000 every month compared to the time before I started cutting back.
I’m afraid a lot of people treat their Emergency Funds as savings accounts to dip into for whatever. DON’T DO IT!! Save it for when you loose your job, or loose a limb!
Matt: I certainly agree that emergency funds should always be used for true emergencies, and that the definition of “emergency” can be somewhat malleable but not much. Job loss: yes. Medical emergencies: most of the time, yes. New computer: almost always no. Vacation: no. You may even want to “hide” your emergency fund (such as hiding the account from Quicken reports or putting it in a bank you don’t check online very often) to resist spending temptation.
So if we all cut our expenses so much that we would all be saving $1,000, wouldnt that mean other jobs lost. When we spend someone else makes money and uses it to purchase other things, and so on…?
I have two savings accounts: One for emergencies, the other for budgetary oversights and smallish things that come up.
An emergency is an emergency. I don’t touch this money, and with luck, I never will.
I give myself permission to touch the budget account, and even treat myself when it gets big enough. If I ever took money from my emergency account, i don’t know if I could stop.
I would call any unplanned expense that hits you out of the blue an emergency. You can plan for all others. That includes your example, an oil change, or our car insurance which we pay annually. When the insurance bill comes it is big, but it is not an emergency. We always have enough cash on hand to pay it in one swoop. Not only do we avoid paying higher premiums if we pay for our car insurance monthly or quarterly, but we also have the benefit of interest income while the money accumulates in our savings account from which we draw it when we need it to pay the insurance premium.
@ ctreit – That’s a good way to look at it, if you’re really good at looking ahead and planning for expenses you might run into. Hopefully I can get to that point someday. For now I’ve just got to use some of these other ideas and make sure to lock down my emergency fund and find the extra where I can.