First of all, it’s important to understand what an unexpected expense is and what it’s not. So how can we financially prepare for the unexpected events if we are already very good and frugal with our finances?
As we have recently experienced COVID 19 and still experiencing the effects it has on us personally and in our local community. It has affected every country.
As the government has given out many incentives to cope with the pandemic and economic situation to keep our country on the move. What measures can we put in place to protect ourselves and financially prepare for the unexpected?
So, let’s look at some effective ways to financially prepare us for the unexpected events in our lives and our community. Especially as we are still currently being affected by the pandemic.
1. Make sure we have revised and made an emergency fund
Before contributing to your pockets of cash reserved for investments, you should already have a saved emergency fund in place.
Having an emergency fund allows you to undertake the unexpected costs of an emergency without reducing your monthly investment contributions or liquidating your investments.
These unexpected expenses add up over time and if you make it a habit to use money reserved for your investments to pay off an emergency, you could potentially derail your long-term financial goals.
Think of your emergency fund as a way to guarantee some peace of mind financially while you deal with the physical, emotional or logistical aspects of an emergency.
To cushion yourself in the short term, we recommend having an emergency fund that covers at least 6 months of your living expenses.
2. Share Responsibility for Financial Decisions.
One of the best ways to prepare yourself for a life-changing and unexpected events is to share in the financial decision-making process with your partner. If you are on your own then seek advice from an accountant or financial adviser who can help set up something that works for you.
So that you’re well prepared and already well-informed when left to make decisions on your own. Understanding your sources of income and living expenses is a critical component of financial self-sufficiency.
It may be helpful to create a budget to help you with recurring expenses and obligations. Additionally, engage with your financial adviser regularly and ask plenty of questions so that you’re fully aware of your family’s financial situation.
Review your wealth plan routinely and make sure it’s aligned with your needs as your personal circumstances change.
As divorce rates remain high and women continue to have longer life expectancies than men, there is an increased likelihood of a woman assuming control of her family’s finances at some point in her life.
With proper preparation, this transition does not need to cause anxiety when and if it occurs.
If you haven’t already taken steps to prepare for your financial future, work with your family members and trusted advisors to ensure that you’re ready for any of life’s unexpected events.
3. Review Insurance Policies
While you might assume that damages from floods and weather events are covered under homeowner’s insurance, this is often not the case.
In fact, according to U.S. News & World Report, a survey of 1,200 adults revealed that about half of homeowners didn’t know the precise coverage of their home insurance policy.
Natural disaster such as floods, earthquakes and fires require their own policy, or cost additional when included in a standard policy.
If living in an area that comes with high risk of natural disasters, it is in your best interest to ensure your policy covers the events you want.
Even if this means spending a bit on monthly payments. You can always re-evaluate your finances to make this work, and you should to be prepared.
Australia has many natural disasters so check how your insurance rates.
4. Prepare for larger life risks with insurance
Major incidents, such as property damage, permanent disability, illnesses, or death can cost hundreds of thousands of dollars.
These life risks and occurrences are more than what your emergency fund can cover.
So, it’s vital to have insurance that appropriately reflects and protects your particular life circumstances.
This will also help to maintain the integrity of your other finances while also taking care of yourself and your loved ones.
Keep in mind, you should pay for enough insurance coverage given your life circumstances.
For instance, if you’re a single working adult, you may not need to a high-coverage life insurance compared to someone who’s married with children unless you have a large amount of debt.
If you own a home, make sure you have homeowners’ insurance and when you can travel do have travel insurance.
These relatively small premiums on the things you value are minor compared to what you’d be paying if your health, life or property were compromised.
Just as you would do with your investments, take the time to understand the type of insurance you should be buying. How much you should be paying for your premiums and check with a financial adviser who can help you set it up and through any claim process.
5. Boost Your Income
For most people, cutting expenses is the easiest way to boost savings. However, if you’re already living on a shoestring budget, there’s probably not much for you to cut.
In this case, the best way to save more money is to make more money.
There are two main ways to do this: earn more at your job or find ways to bring in income on the side as a side-hustle.
1#. Earn More with your current job
At first glance, it may not be obvious how you can increase the income you get from your job.
After all, your boss sets your pay rate, not you.
However, if you look carefully, you’ll find there are actually several ways to give your salary a little boost.
For instance, you can:
- Adjust Your Taxes.
If you’re used to getting a big refund after filing your taxes every year, that’s a sign you’re having too much tax taken out of your salary.
You can instantly increase the size of your weekly salary by adjusting your tax withholding.
Checkout the ATO or Tax withholding Calculator to figure out how much tax you should be withholding.
- Work More Hours.
If you work at a job that pays by the hour, you can increase your pay by putting in more hours. This will depend on the spread and effect of coronavirus in your area.
Try asking your boss if you can work an extra shift here and there or put in more overtime.
Overtime hours are especially helpful since your boss has to pay you time-and-a-half for them – that is, one and a half times your regular pay rate.
- Ask for a Raise.
If you feel like you’re not making enough money at your job, maybe it’s time to ask for a pay raise.
Start by doing some research to figure out what people in your position usually earn.
The salary calculator from pay calculator is a good resource for this. Then, figure out the right time to ask – for instance, after your yearly performance review.
Put together a list of your best reasons for why you’re worth more money and practice them before you walk into the boss’s office.
- Apply for a Promotion.
If you can’t earn more in your current position, perhaps you can earn a promotion.
Figure out what specific position you’d like to set your sights on, then start brushing up on the skills you’ll need to qualify for it.
However, don’t focus so much on the job you want that you neglect your current one.
You need to prove you’re an asset to the company before the boss will entrust you with new responsibilities.
- Find a Better- Paying Job.
If you just can’t squeeze any extra money out of your current job, try looking for a new one with better pay.
However, when considering a potential new job, don’t look only at the salary.
Many financially successful people say the real secret to their success was working at a job they loved where they were always happy to put in the hours.
Take your time researching new positions and look for one that can make both you and your bank account happy.
2#. Find Sources of Side Income
If you can’t find a way to earn more at your main job, don’t lose hope. There are many ways to make extra money on the side, such as:
- A Second Job.
One way to bring in extra income is to take on a second job.
Maintaining two jobs at once is demanding, but if you can manage it for even a short time, it can give you the extra cash you need to get your emergency fund started.
If you currently have a 9-to-5 job, look for one you can do in evenings or on weekends.
If you need a more flexible schedule, More flexible options to consider Door-Dash or driving for Uber or Lyft, which allows you to set your own hours.
- A Side Hustle
Instead of getting a second job working for someone else, you can start a side business and be your own boss.
Possible side businesses include babysitting, tutoring, dog walking, and freelance writing.
If you’re an artist or a crafter, you can earn extra cash selling your wares on Etsy. You can also pick up odd jobs on Fiverr or TaskRabbit.
- Renting Out a Room or Something Else.
One way to bring in a steady stream of extra cash is to rent out a room in your house if you have one to spare.
If you don’t want to take on a regular tenant, you can rent your spare room to occasional guests through a service like Airbnb.
Rooms aren’t the only thing you can rent out, either.
You can rent out your unused parking space through a service called SPOT or rent anything from your car to your wedding dress through Zilok.
- Selling Your Stuff.
Have you ever spent money on something you don’t use anymore, like clothes that no longer fit or a stamp collection you’ve lost interest in?
Instead of feeling bad about it, turn those unused items into cash.
Antique dealers could be interested in your old furniture, jewellery or coins.
You can sell clothing, furniture, and other items in good condition at consignment shops, you can also find these online.
For everything else, there’s eBay.
- Cashing in Rewards.
If you subscribe to any shopping rewards programs and apps, cash in your rewards regularly and feed the money into your new savings account.
If you don’t, perhaps this would be a good time to join one. Programs with cash rewards include Survey Junkie, Inbox Dollars, Swagbucks.
6. How to Plan for Unexpected Expenses
Along the way keep track of all the different unexpected expenses, so you can plan ahead and include them in your budget.
This list will save you some of the frustration that comes along with going over budget due to unexpected expenses! Many of these are things are annual expenses, or every few years or things that are unpredictable.
You might simply forget about them, or it may be hard to predict the cost. But that’s still no reason to leave them out of your budget.
Include this list of unexpected expenses as a buffer in your budget each month.
40 Unexpected or Larger Expenses
Did you make a budget this month? Here are 40 unexpected expenses you might have forgotten.
- Car Registration
- Income Taxes
- Drivers Licence or ID card renewal
- Roadside assistance membership
- Car Repairs and Maintenance, eg. brakes, alignment
- Professional Licenses and Memberships not reimbursed by work
- Fines, eg. Library fines, speeding tickets
- Electronics Replacement, eg. computers, phones, cameras
- Printer Cartridges and paper
- Gifts, eg. weddings, birthdays, baby showers and Christmas
- Shipping costs
- Attending get-togethers where you need to bring food
- Home repairs and maintenance
- Termite Inspection
- Post Office Box
- Household supplies, eg. cleaning supplies
- Gardening expenses, eg. soil, seeds, fencing
- Lawn expenses, eg. gas for mower, mower replacement
- Furniture and appliance replacement
- Seasonal yard maintenance
- Travel for holidays but also for weddings, births, and funerals
- Medical, dental, and vision expenses
- Pet food
- Flea treatment
- Veterinary care
- Pet Registration and insuarnces
- School Supplies
- School Pictures
- School Uniforms
- Sports and extracurricular equipment and dues
- Field trip fees
- Seasonal Gear, eg. coats, snow pants, hats, boots, etc.
- Gifts for when your kids attend their friends’ birthdays
- Tax Preparation (software or accountant)
- Taxes on extra income from work from home income or interest earned
- Property Taxes
How to Pay for Unexpected Expenses
That kid’s birthday party you were invited to?
Well, you ended up gifting something that you already had at home to stop going over budget.
Then each month from then on save a bit toward your gifts budget so that you are always ready. Don’t forget about healthcare.
Not a good idea to rely on your emergency fund as a catch-all for these unexpected expenses because most aren’t emergencies.
If you do rely on it you’ll soon find yourself without an emergency fund.
Instead, set aside a small amount in your monthly budget for each of these expenses, and you’ll have no added stress when any of them pop up. Set up a sub-account for Extra bills.
Planning for these unexpected expenses now will help you budget successfully and achieve your financial goals faster.
What budget items have you forgotten in the past? Share your advice in the comments.