Lets face it. Things will not always go smooth sailing in our life. Things happen unexpectedly at times. And if you are one of those who budgets every month, you may get annoyed if you got hit with an unexpected bill. It will derail your financial track. It will make you step back a little bit (or maybe a lot) from obtaining your financial goal.
Now, when I say unexpected, I mean things such as car repairs, appliance repairs or replacements, medical bills, and other things that you just don’t see it coming.
Things such as property tax bills, insurance, and car registrations are major expenses that don’t happen every month. However, these things are expected. You know it’s coming and you must pay it.
Expected expenses are easy to tackle. I would recommend you to total the expense on a yearly basis then divide by 12 to get a monthly total. Spare and save some money for this. Put this in your budget. By the time it is time to pay, you have already gathered enough cash to pay it,
What to do if it is unexpected?
The term unexpected is pretty simple. It just means you just didn’t see it coming. It’s unavoidable and it gets frustrating at times. Shelling out some money to pay for these unexpected expenses are not easy for anyone.
The easy way would be to have emergency fund. A lot of people talk about this, but really, how much is enough in the emergency fund? Most financial advisers recommend 3-6 months worth of living expenses as your emergency fund. While this is a good rule of thumb, I find it to be not completely bulletproof.
And the reason I say that is because some of these unexpected expenses can actually be predicted. And these things should NOT be covered with your emergency fund. For example, if you have a home, look at the major items that may go out on you at anytime. All of these things have their own “lifetime”. Water Heaters, HVAC, Roofs, etc.
Let’s look into Roofs. Typical Roofs can costs you $7,000 – $15,000 depending on how big is your home. When your need a new roof, the costs will potentially deplete most, if not all of your emergency fund. It will take a long time to replenish that fund. Roofs are predictable. They don’t last forever. Have a roofer give you an estimated “lifetime” left. This will give you an idea when you may need to shell out a big chunk of money to replace it.
Another unexpected major expense is car repairs. Your vehicle does not last forever either. Eventually you will need maintenance that is more than just oil change. Some of the items in your vehicles can be so costly to replace. And again, it will come unexpectedly. This is why you see people stranded on the highway with a dead car.
For a vehicle, take note of the mileage. Do your research online about its maintenance schedule. Even if the schedule says to replace the timing belt at 100,000 miles, it probably does not apply to you. You may go either much further than that or your belt will fail at 80,000 miles. Who knows!
Have a separate funds saved for repairs and maintenance. Separate from emergency fund. Your emergency fund is based on your monthly expense budget. It does not take into account for major expenses that only come once in a few years.
Secondly, take a note of when was the last time the major items in your home was replaced:
- Water heater (typical life of water heater is about 10-12 years before it’s failing).
- HVAC (typical life can be 15-20 years or more if you are lucky enough)
- Roofs (typical life can be 20-30 years, 40-50 years if you have Tile roof)
Taking notes of these can help you estimate. It will come to you at anytime unexpectedly.
I personally have repairs and maintenance in my monthly budget. I always count it as “expense”, but the reality is that I just put the money in another account. As an example, I had to buy a new washer for $600 last month. I did not have to take that $600 from my emergency fund. It feels great doing it this way.
Hopefully this post is useful. Please feel-free to leave any questions in the comment section below. Thanks!