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It’s just a matter of time before it happens. The transmission blows on your car or your son needs braces. Your dog needs to be rushed to the vet, or your washing machine decides to call it quits. These are all unexpected expenses and something we need to deal with throughout life.
Being prepared as much as you can is your best bet when life throws you a financial curveball.
Financial emergencies always seem to occur at the wrong time. But you can do your best to expect upcoming expenses. If you’re driving an older car, or your refrigerator has seen its better days, start saving up to replace the item. You may also want to start keeping an eye out for good deals on the replacement.
Set up an emergency fund
An even better strategy is to have an emergency savings fund. Set up a savings account and add to it monthly. A good rule of thumb is to have at least $1000 in an emergency fun but to be comfortable, at least $2500 would be best. Use it only for completely unexpected expenses. Make sure you know what’s in the account and once you have to take money out of it, replace it as soon as possible.
Recovering after an expense
This brings us to a good point. Here’s how to recover after that expense. Go over your budget (you have one of those, right?) and look to see if you can temporarily cut back on some things. Cut down on your grocery spending. Stop ordering takeout every Friday night and make your meal at home instead. Skip a night out on the town and watch a couple of movies on Netflix instead of going to the cinema.
Use the money you’re not spending for the next few months to refill your emergency fund. For an extra boost, figure out some ways you could make that money back quickly. Work a few hours of overtime or do a few freelance projects. You can even pick up a part-time job to get back on track fast.
But what do you do when the expense comes up before you had a chance to set up the emergency fund? Take a deep breath and assess the situation. Can you make do without the item for a little while? Long enough to scrape together the funds to repair or replace it. If it’s the dishwasher, that’s easy. You can wash dishes by hand for a little while. If it’s the fridge or the car you rely on to get you to work each day, that’s a different story.
If you need the item that broke, check if it would be less expensive to repair than replace. Find a friend or neighbor who can fix cars and arrange to reimburse them at a later time. Even if it isn’t the perfect solution, it may get you to work until you can save up for a different car.
What to do if you don’t have an emergency fund?
Shuffle your money around. And if there is no other option, charge it to the credit card with the lowest interest rate and get to work. Your only goal right now is to pay off that expense. If you put every penny of discretionary income into your emergency fund, you’ll be on your way before you know it.
Once your bills and credit cards are paid off, do what you can to get that emergency fund set up. Because you know something else will break down the road.
In a perfect world, we’d all be prepared for the unexpected but things happen. It’s beyond our control and emergencies are bound to happen sooner or later. The point is, you need to be prepared for whenever the unexpected happens. Even if it’s $500 saved in an account, you’ll be glad to have it when you need it.
How do you prepare for unexpected expenses? Leave a comment below!