It can affect your finances and bring undue stress on your life in case unexpected costs come knocking. Whether you get stung by a bill for fixing your car, breaking of a home appliance, or even a medical emergency, facing the unexpected will make you floundering when it comes to money management.
So, how can you prepare for these unexpected costs before they ever arrive? Let’s start exploring these 7 practically viable strategies.
1. Create a Realistic Spending Plan
A spending plan is the first step towards the preparation for unplanned expenses. A budget provides a tight limit on your expenditures whereas a spending plan focuses more on how you are going to allocate money. Imagine it like a roadmap which puts light on places your money should go every month.
You can start putting together a decent budget by starting to write down your fixed costs like rent, utilities, and groceries as well as your income, then you have to look at your spending behavior over a few months to pinpoint precisely where you are wasting unnecessary money. It is essentially the point at which you eliminate some of those excess expenses, thus freeing up more money to save and invest.
2. Build an Emergency Fund
This is referred to as an emergency fund, a type of savings account created for catering to unexpected expenditures. While using a credit card or borrowing money would be the best alternative solution when any unplanned cost comes up, you can tap into your emergency fund for that particular purpose.
You should have three to six months’ worth of your living expenses in your emergency fund, experts say. But if you want, you can take a step in the right direction by saving $500 or $1,000. To keep growing your fund, open a separate savings account and schedule monthly automatic transfers.
3. Sell Unused Items for Extra Cash
Take a tour around your house; you are likely to come across clothes, electronics, or furniture that you do not use again. These can be turned into money to stash away in your reserve fund.
Sell the unused materials through sites like eBay, Craigslist, or Facebook Marketplace. This gives you cash on top of cleaning up around your house-meaning you kill two birds with one stone with the process.
4. Save for Regular Maintenance and Repairs
The surprising thing about some unexpected expenses is that some of them might become predictable, we just don’t plan for it. For instance, cars need to be serviced regularly; appliances will break down; the house will require repairs after sometime.
In preparation not to have some untimely financial surprise, you can prepare by saving a small amount of money every month in preparation for that possible future maintenance cost. That way, when you really need a car repair or a replacement washing machine, you won’t be lowering the said emergency fund or piling up with more debt.
5. Have A High Yield Savings Account
A high-yield savings account is a great place for your emergency fund and predictable savings to sit. Your money works for you fast, and it’s usually a lot higher interest than a regular savings account.
Putting your money into a high-yield account is the way to avail your funds to you when you really need them but still earn that little extra money on your saving.
6. Save for Seasonal Expenses
As some expenses can be quite surprising since they only arise at rare times, like holidays, back-to-school supplies, or annual insurance payments, provide the right provisions for each one of them. End.
For instance, if you really spend approximately $600 per year on holiday gifts, then you can save half of it per month. Come December, you will have enough money to cover your holiday expenses, and you won’t break into the house to grab a credit card.
7. Pay Off Your Credit Cards Smarter
While you may wish to use your emergency fund to pay for all of the sudden expenses that you have, sometimes the cost exceeds your savings. In such a situation, a low-interest-rate or reward-based credit card may be a good option, if you manage it well.
Thus, opt for a low-interest-rate or reward-based credit card which gives points for buying. Always try to pay back the balance in the shortest time possible so that you avoid paying interest.
Final Thoughts
Actually, but unexpected expenses are just part of life, do not necessarily have to put your financial plans off course. With an emergency fund in place, planned predictable costs, and microadjustments in spending, it will be ready for anything that will come your way.
Of course, it may not get rid of financial stress entirely, but you can be sure that when unexpected events do occur, you will be better prepared. Better yet, save now, plan ahead, and ride through any surprise expenses on your way to becoming an expert in living life to the fullest.