As the writer and cartoonist Allen Saunders once said, “Life is what happens to us while we are making other plans.”
Personal finance is a perfect example. You can sit down and make a budget that covers all your regular expenses – housing, food, transportation – right down to the last penny. But real life has a way of getting in the way. Your water heater bursts, or a taxi sideswipes your car, or your puppy swallows a rubber band, and all of a sudden your budget is out the window.
There’s no way to predict when disasters like these will strike – but there are ways to prepare for them. For example, you can start an emergency fund to cover unexpected expenses. You can also carry insurance to protect you from many problems that could bankrupt you otherwise, such as medical emergencies or auto accidents. With a little planning, you can be ready not just for a rainy day, but for a perfect storm of unexpected expenses.
What Is an Unexpected Expense
First of all, it’s important to understand what an unexpected expense is – and what it’s not. There are some bills you don’t have to pay every month, but these still don’t count as unexpected. Examples include:
- Quarterly property taxes or water/sewer bills
- An auto insurance premium that comes due every six months
- A yearly eye exam
Expenses like these are predictable. You know exactly when they’re going to come due, and you know at least approximately how much they’re going to cost. This makes it easy to plan ahead for them in your regular household budget. You just divide that quarterly tax payment by three, the insurance premium by six, or the doctor’s bill by 12, and set aside that amount each month to cover the cost.
Regular car and home maintenance expenses aren’t exactly unexpected, either. These are costs that you know are bound to crop up sooner or later. Maybe you don’t know exactly how much you’re going to have to spend on your car or your home in a given year, but you can come up with a pretty good estimate.
For instance, for home maintenance, many experts suggest going by the “1% rule”: On average, you should expect to spend 1% of your home’s total sale price on maintenance each year. That means if your home cost $300,000, you should expect to pay an average of $3,000 a year to maintain it. Thus, if you set aside $250 each month in your budget for home repairs, over the long term, it should be enough to cover the cost. Similarly, for the average car, you can set aside about $100 a month to meet your auto repair costs over the course of the year.
A truly unexpected expense is something that you can’t predict, such as a natural disaster or a medical emergency. These are the things that could happen to you at any time, but you can never be sure if they will – or how much they’ll cost you if they do. That means you can’t simply fit these expenses into your regular budget; it takes a different kind of planning to prepare for them.
Types of Unexpected Expenses
How you deal with an unexpected expense depends on what kind of expense it is. For some, you can buy insurance to protect you from the cost. If insurance doesn’t cover everything, you can try to cut the cost by shopping around – or by using your DIY skills instead of hiring a professional. Then, when you’ve exhausted these options, you can rely on your emergency fund to cover the rest of the bill.
1. Medical Emergencies
Some healthcare costs – checkups, medicines, minor illnesses, and so on – are normal expenses that you can budget for. But if you’re hit by a bus or your appendix bursts, that’s a whole different situation. In a situation like this, you have to deal with the pain of your condition, the stress of knowing that your life is in danger, and the hassle of being rushed to the hospital for surgery, all at the same time. The last thing you need is to top all that off with a huge bill that you can’t afford to pay.
What It Can Cost: The high cost of healthcare in this country means any kind of medical emergency is likely to come with a big bill attached. According to CostHelper, if you don’t have health insurance, a visit to the emergency room can cost anywhere from $150 to $3,000 – and that’s just for the ER visit itself. Tests, lab fees, and specific services, such as sutures, can add hundreds or even thousands of dollars more. If you end up being admitted to the hospital for surgery or critical care, CostHelper says you could face bills of $20,000 more.
And those are only the costs for a one-time medical emergency. Major illnesses, such as cancer, can require months of treatment at very high costs.
Drugwatch reports that the average cost of cancer surgery ranges from around $14,000 to over $39,000. Typical costs for radiation therapy range from $11,472 for one month to $35,761 for three. For chemotherapy, the average cost ranges from around $10,750 for one month to over $100,000 for a full year. Ant this doesn’t even include the cost of the income you lose from being unable to work during your treatment.
Ways to Avoid This Expense: The simplest way to avoid high medical bills is to not get sick. You might think you don’t have much control over that, but actually, there’s a lot you can do to keep yourself healthy. Simple lifestyle choices like not smoking, eating right, and exercising can dramatically cut your risk of all kinds of major illnesses, including cancer, heart disease, and diabetes. You can also fight off germs by washing your hands regularly and getting regular vaccinations.
Even when you can’t avoid health problems completely, catching them early makes them a lot easier to treat. Seeing your doctor once a year for a checkup is a good way to discover minor health problems before they turn into major ones. Yes, it’s a hassle to take an hour or more out of your day to sit in a doctor’s office, but it’s a lot less of a hassle than being rushed to the emergency room for a problem you didn’t catch early – and a lot less expensive too.
Ways to Deal With This Expense: Of course, even if you’re the healthiest person in the world, that doesn’t prevent you from becoming injured. This is exactly why everyone needs health insurance. It protects you against huge health bills, turning an unpredictable expense into an ongoing one that you can budget for.
Admittedly, health insurance isn’t cheap. According to eHealth, the average cost of a policy is $321 a month for a single person and $833 for a family. However, under the Affordable Care Act (otherwise known as Obamacare), you can get a subsidy to cover part of that cost if your income is low. Even without the subsidy, it’s a lot easier to pay $321 every month than to come up with a $20,000 for a hospital bill all at once.
You can also make insurance a lot cheaper by choosing a “catastrophic” health plan. These plans don’t cover basic care, but they’ll protect you against the kinds of emergency expenses that could bankrupt you. According to eHealth, these plans only cost around $153 a month.
However, this type of plan usually has a high deductible, which means you could still end up having to pay thousands of dollars out of pocket in a medical emergency. To make things easier, you can pair your catastrophic plan with a Flexible Spending Account, which lets you pay for healthcare expenses with pretax dollars. Or you can rely on your emergency fund to cover the deductible.
Finally, you can look for other ways to cut healthcare costs. For instance, you can use walk-in clinics and urgent care centers instead of hospital emergency rooms. You can ask your doctor about cheaper treatments, such as generic drugs. And, if you get stuck with a medical bill that’s more than you can afford, you can try to negotiate with the provider. According to CNBC, hospitals are usually willing to work out a payment plan rather than risk getting nothing at all.
2. Pet Emergencies
If you have pets, you probably know what it’s like to have to rush them to the vet. When your dog has been hit by a car or your cat has started having seizures, you just want to get help for your pet as fast as you can, and the cost doesn’t even cross your mind. But once the crisis is over, you often find yourself facing a whole new problem: a massive bill from the vet.
What It Can Cost: A pet health emergency can be just as costly as an ER visit for a human. Here’s how much Preventive Vet says it typically costs to treat some common pet emergencies:
- Birthing problems requiring a C-section: $1,500 to $3,000
- Intestinal obstruction requiring surgery: $2,000 to $4,000
- Poisoning: $250 to $6,000, depending on the type of poison
- Injuries from being hit by a car: $250 to $8,000
- Bites from another animal: $250 to $1,500 for cat bites; $1,000 to $10,000 for dog bites
Ways to Avoid This Expense: Fortunately, many of these common pet problems can be avoided. For instance, spaying female pets means you won’t have to worry about any complications from pregnancy or birth. You can prevent poisoning and intestinal blockages by finding out what kinds of substances can hurt your pet and make sure to keep them well out of reach. And keeping your pets indoors, or on a leash when they’re outside, helps protect them from cars and other animals.
Also, just like you, your pet can benefit from a checkup every year. This will give your vet a chance to spot possible health problems and treat them before they turn into health emergencies. Making room in your budget for an annual visit to the vet is a lot cheaper than dealing with a health crisis in the future.
Ways to Deal With This Expense: Sadly, no matter how carefully you look after your pets, you can’t protect them from every possible problem. Despite your best efforts, your pet could one day come down with a serious illness like cancer, diabetes, or a thyroid problem that requires thousands of dollars to treat. If you don’t have that kind of money, you’ll then face the heartbreaking choice of going into debt or putting a beloved pet to sleep.
To avoid being put in this position, many people buy pet health insurance. Just like health insurance for humans, these policies cover the costs of major vet bills. However, because pet healthcare is usually cheaper than healthcare for humans, the premiums tend to be a lot lower. According to Consumer Reports, a pet insurance policy that covers both accidents and illnesses – but not routine veterinary care – costs an average of $473 per year for dogs or $285 per year for cats.
One problem with pet insurance is that many policies have a lot of limits on what they’ll cover. A simpler alternative could be to take the money you’d spend on pet insurance premiums and put it into a special emergency fund. Then, if your pet has an emergency, you can draw money out of this fund with no paperwork and no deductible. The catch is that, if your pet gets sick in the first year or two after you start your fund, you might not have enough set aside to cover the bills.
If you don’t have insurance, there are a few other ways to get help with vet bills. For instance, you can:
- Negotiate With Your Vet. Just like hospitals for humans, vets are often willing to work out a plan so you can pay off a big bill over time. Sometimes, they don’t even charge interest. In other cases, your vet might be willing to let you pay off your bill by doing some kind of work, such as cleaning kennels or answering the phone.
- Find a Cheaper Provider. See if you can find another vet who will charge less. Veterinary schools sometimes run low-cost clinics for low-income pet owners. Also, some animal shelters either run low-cost veterinary clinics on-site or have special pricing deals with local vets.
- Seek Aid. There are various charities and animal-welfare groups that help needy pet owners with their vet bills. You can find a list of several such groups on the Humane Society site.
3. Major Auto Repairs
If you own a car, you expect to spend a certain amount of money each year to keep it running. You may not know exactly what repairs your car will need in a given year, but you can estimate when it’s likely to need new tires or a timing belt and budget for the cost.
What you can’t predict or plan for is an accident that causes a whole lot of damage to your car all at once. The Rocky Mountain Insurance Information Association reports that in 2013, the average claim for collision damage after an accident was over $3,000. If you didn’t have insurance to cover it, that would be a pretty big bill to pay.
What It Can Cost: Whether they result from an accident or from everyday wear and tear, unexpected car repairs can cost hundreds or even thousands of dollars at once. Here’s how CostHelper estimates the cost of common repair jobs:
- Bumper: $300 to $1,600, including installation
- Radiator: $150 to $900 for cars; $250 to $950 for SUVs and trucks
- Timing belt: $150 to $1,000 for the belt alone; $300 to $1,600 for a timing belt package that includes items like a water pump, tensioner, drive belts, and seals
- Transmission: $1,000 to $6,000, including installation
- Windshield damage: $50 to $150 for repairs, $500 to $1,500 for replacement
Ways to Avoid This Expense: In many cases, you can delay the need for major repairs by simply driving less. The less you drive your car, the less wear and tear you put on it. Consider biking to work, doing errands on foot, carpooling, or combining several small errands into one trip to cut your total mileage. As a bonus, this will also help you save money on gas.
You can also avoid many major car problems by following your car’s maintenance schedule rigorously. Putting off maintenance might seem like a good way to save money, but it just sets you up for bigger and more costly problems down the road. A better way to save on routine maintenance is to do simple repairs yourself.
If you’re particularly handy with cars, you can save even more by tackling bigger jobs. For instance, CostHelper notes that if you buy a used transmission and install it yourself, you’ll pay between $200 and $600 – a savings of 40% to 90%. However, it’s still worth taking your car to a mechanic at least once a year to have it completely checked out. Just like an annual physical, this yearly checkup is a chance to catch small problems and fix them before they turn into big problems.
Of course, none of this will prevent damage from car accidents. The best way to do that is to be a safe driver. Stick to the speed limit, keep your eyes on the road, avoid distractions, such as cell phones, and of course, never get behind the wheel after you’ve been drinking. Another good rule is to stay out of heavy traffic if you can, since you’re more likely to get in an accident when there are lots of other cars to hit.
Ways to Deal With This Expense: Even the most careful drivers get into accidents sometimes. That’s why there’s collision coverage, a type of auto insurance that covers accidental damage to your car.
However, this type of coverage isn’t always worth the cost. It’s most likely to be a good value for newer cars or cars that are very expensive to repair. Experts say if the cost of collision coverage is more than 10% of the maximum payout – that is, your car’s total value minus your deductible – then it’s better to drop it.
Collision insurance doesn’t cover mechanical failures, but there are other types of coverage that do. For instance, if your car is less than three years old, it probably has a warranty that covers repair costs if anything breaks.
For older cars, you can buy mechanical breakdown insurance. This type of policy can cost anywhere from $300 a year to a few thousand, depending on the car and how old it is. It could be a good value if the price isn’t too high, but for many people, it’s cheaper to take the money they’d pay for premiums and set it aside in an emergency fund. That way, if the car needs a repair, the money will be there, with no deductibles and no strings.
A final way to save on car repairs is to find a good mechanic you can trust. That way, you won’t have to pay for repairs that you don’t really need because the mechanic can’t figure out what’s wrong.
4. Major Home Repairs
Like a car, a house is pretty much guaranteed to cost you a certain amount of money every year. The 1% rule – setting aside 1% of your home’s purchase price each year for repairs – is a good way to estimate how much that cost will be, but it has its limitations. Some years, your house doesn’t need any major repairs at all; other years, everything seems to break at once.
That’s what happened to teacher Teresa Chiffons and her husband one winter. As she told the NEA Member Benefits Corporation, first they had to replace the furnace, which cost $5,000. Then a few months later, the house’s main electrical line failed, requiring another $8,000 for replacement. The repair costs for these two projects completely ate up the money they’d been saving for a down payment on a new house.
What It Can Cost: Repair bills like the ones the Chiffons family faced aren’t at all unusual. Here are the typical price ranges for several common home repairs, based on surveys done by HomeAdvisor:
- Upgrading the electrical panel: $531 to $1,683
- New furnace: $2,508 to $6,049
- New air conditioner: $3,715 to $7,165
- New roof: $5,107 to $9,679
- Building or replacing a deck: $4,051 to $10,040
- New siding: $4,993 to $13,515
Ways to Avoid This Expense: Just like car problems, small problems in your home can turn into much bigger problems if you don’t deal with them promptly. That means the best way to save money on home maintenance is to stay on top of it and fix every problem when you first detect it. It’s much better to fix a small leak right away than to spend thousands replacing mold-damaged walls down the line.
Don’t limit your maintenance work to the house itself, either. Taking good care of the yard can often help you avoid damage to the house. For instance, you should trim tree branches that might fall and hit the house in a high wind. Also, clear away plants that are too close to the house, where their roots could damage the foundation or the plumbing, and direct water from your downspouts so it doesn’t flow toward the house.
Often, you can save on home maintenance jobs like these by doing them yourself. However, don’t take on any repair that’s more than you can handle. Consider cost, time, and safety before deciding whether to do a DIY repair or hire a contractor. If you start out sticking to small repair jobs, over time you’ll build up your DIY skills until you can handle the bigger ones.
One problem good maintenance can’t prevent is damage from a storm or other natural disaster. However, you can learn about the kind of disasters that are likely in your area and be prepared for them. If you live in hurricane territory, make sure you have storm shutters, and consider buying a generator to deal with power outages. In tornado country, set up a storm cellar or other safe room, and in earthquake-prone areas, make sure all furniture is secured to the walls.
Ways to Deal With This Expense: Another important way to be prepared for disasters is to have good homeowners insurance. A standard homeowners policy covers damage from wind, fire, hail, and lightning. However, most policies don’t cover flooding or earthquakes. You can add a separate flood insurance or earthquake policy if you live in an area where you’re likely to need it.
According to ValuePenguin, the average cost of a homeowners insurance policy in the U.S. is $1,083 – and rising steadily. One way to keep this cost lower is to increase your deductible. Of course, that also means you’ll have to pay more out of pocket if you need to make a claim, but you can rely on your emergency fund to cover that cost. Over the long term, if you carry a higher deductible and bank the savings in your emergency fund, you’ll probably come out ahead.
You can also draw on your emergency fund for ordinary home repairs – the kind the Chiffons family had to deal with. However, that’s no reason to pay more for a repair than you have to. Before hiring anyone to complete a major repair, check a site like HomeAdvisor to get an idea of what you should expect to pay. You can use this info to check the quotes you get from contractors and see if they’re reasonable.
Experts recommend getting quotes from at least three contractors for any given job. However, don’t simply choose the one with the lowest bid. Check references and licenses to find a good contractor who will do your repairs right. It doesn’t save you anything to have a job done on the cheap if it has to be redone a year later.
5. Unplanned Travel
Usually, when you’re planning a vacation, you can choose the date and destination to fit your budget. However, sometimes you have to make travel plans unexpectedly. Whether it’s a joyful event like your cousin’s wedding or a sad one like your great-aunt’s funeral, an unexpected trip can eat a hole in your budget.
What It Can Cost: The cost of a last-minute trip depends on where you’re going and how you get there. If you’re traveling from Philadelphia to a wedding in San Francisco, you pretty much have to go by air, unless you want to take all week to get there. A round-trip ticket between the two coasts costs around $500. Tack on an extra $200 or so for two nights at a hotel, $35 a day for a rental car, and maybe $80 for meals, and you’re looking at around $850 for one weekend.
If you’re making a shorter trip – say, from Philly to Boston – you have more options. If you choose to fly, you’ll only pay about $250 round-trip for this shorter hop. However, you can also drive, paying about $75 for gas and wear and tear on your car, or take the train for around $100. Add in the cost of a hotel room, rental car, and meals, and you could pay anywhere from $425 to $600 for the trip.
Ways to Deal With This Expense: There’s really no way to avoid this kind of last-minute travel, unless you’re prepared to cut yourself off from your friends and family. However, there are ways to manage the cost. For example:
- Keep Fares Low. Don’t fly unless you have to. For short-to-medium-length trips, it’s generally cheaper to drive – even if you have to rent a car – or take a train or bus. If you must fly, shop around for cheaper airfare. Having to make travel plans on short notice can actually work to your advantage here, as airlines often discount tickets at the last minute in an effort to keep their flights full.
- Look for Hotel Alternatives. Consider less expensive alternatives to hotels, as well. If you can’t stay with friends, look at hostels and home rental sites, such as Airbnb.
- Save on Meals. To save on food while traveling, get creative. Try packing a bag lunch to eat on the road instead of relying on pricey, mediocre food from the airport or a roadside stop. If there’s a kitchen in your lodgings, take advantage of it to prepare your own breakfast instead of eating out. Even if all you have is a mini-fridge in the hotel room, that’s enough to store a pint of milk so you can eat a bowl of cereal in your room.
- Start a Travel Fund. You never know when an unexpected trip is going to pop up – but you can pretty much count on it to happen every year or so. To deal with the cost, set aside a little money each month in a special slush fund that’s earmarked for travel costs. Then, the next time you get a wedding invitation, you’ll have the money for the trip ready.
6. Unexpected Gift Expenses
As if the travel costs weren’t enough, a family wedding also requires you to shell out money for a wedding gift. Gifts are also expected for a wide variety of other occasions, from baby showers to retirement parties. At some workplaces, it’s common practice to take up a collection for a group gift pretty much every time a coworker has a big life event. Even if you only give $5 or $10 each time, it starts to add up after a while.
What It Can Cost: Gifts, especially wedding gifts, can be quite expensive. A 2016 survey by American Express found that the average wedding guest spent $99 on a gift for a friend’s wedding, or $127 for a relative’s. And the giving doesn’t stop there. In a thread on WeddingWire, most bridal shower guests reported spending at least $50 on a shower gift – on top of what they spent for the wedding gift.
For other occasions, gift amounts vary a bit more. In a thread about baby showers in the What to Expect forum, posters reported spending anywhere from $25 to $100 on a shower gift. A Good Housekeeping article on housewarming gifts offers ideas ranging in price from $5 to $180. And another Good Housekeeping article on retirement gifts suggests items priced between $10 and $330.
Ways to Avoid This Expense: First of all, keep in mind that you’re never required to give a gift just because someone asks you for one. For example, Miss Manners states very clearly that an invitation to a wedding is not an “invoice” for a gift. If you actually go to the wedding, you’re expected to send a gift, but if you don’t, it’s perfectly fine to send your best wishes to the couple and leave it at that. The same goes for baby showers and other parties.
However, when you’re asked to contribute to a group gift at your office, it’s hard to say no without awkwardness. If you don’t want to create tension between yourself and your coworkers, consider chipping in a few dollars to show that you want to be included in the occasion. If the organizers are doing it right, all donations should be anonymous anyway, so they shouldn’t know how much money each person put into the pool.
If the requests for office gifts are coming so often that it’s straining your budget even at $5 a pop, try proposing a new tradition to your coworkers. Etiquette expert Jorie Scholnik, in an article at Money Under 30, suggests starting “a monthly potluck that covers all occasions” instead of a separate party and gift for each one. That way, all you have to contribute is a homemade food item.
Ways to Deal With This Expense: If you actually plan to attend a wedding, shower, or other event, then yes, you have to give a gift. However, it doesn’t have to be an expensive one. Here are some options for gift giving on a tight budget:
- Give Homemade Gifts. Sometimes, the most thoughtful present is one you made yourself. The key to a good homemade present is that you really put some time and effort into making it – and it shows. If you’re a quilter, a handmade quilt makes a beautiful and memorable wedding present. Hand-knitted booties are a charming baby gift, and a carefully assembled photo book with memories of a coworker’s career is a lovely retirement present.
- Give Gifts of Time. If you don’t have a lot of money to spend on a present, offer up your time instead. For new parents, a night of babysitting makes a welcome gift. For retirees, you could offer your services with chores like yard work or snow shoveling, which can be hard for older folks.
- Make a Basket. Gift baskets are appropriate for any occasion – and it’s easy to put one together from inexpensive materials. A food gift basket works well for a wedding or a housewarming, and no one needs to know you bought all the food with coupons. You can use the same trick to buy baby supplies for a new mom, such as baby shampoo, powder, and lotion.
- Stock Up. Consider keeping a stock of presents on hand for routine gift-giving occasions. You can often pick up suitable gift items on sale very cheaply right after the holidays. Set them aside in a closet, and you always have a gift ready when you need one. Of course, gifts you pick up in bulk aren’t very personal, but they’re okay for coworkers and other people you don’t know that well.
- Regift Carefully. You can even include some regifted items in your gift stock – but be careful: You don’t want to make it obvious that a present is regifted, and you certainly don’t want the original gift-giver to find out about it. But if you got a present you didn’t care for from your cousin, your workplace could be the perfect place to pass it on without detection.
The expenses listed here aren’t the only kinds of unplanned expenses you can face. For instance, a death in the family could leave you with funeral expenses to pay, or a home burglary could mean replacing a lot of lost valuables. One of the most devastating expenses to deal with is a lawsuit, which could conceivably strip you of all your assets.
Fortunately, these are risks you can also insure yourself against. Life insurance covers the cost of funeral expenses, and homeowners or renters insurance protects your personal property. As for lawsuits, you can carry an umbrella insurance policy to protect all your assets, above and beyond the coverage provided by your home and auto insurance policies.
However, not everyone needs these types of insurance. For instance, if you have no dependents, you need little or no life insurance. Similarly, you don’t need umbrella insurance if you have no assets to protect.
The bottom line is that your insurance should be tailored to your needs. Look at your personal situation and decide what kind of coverage you need and what you can afford to skip. Then you’ll truly be prepared for any unexpected expense life throws at you.
What’s the last unexpected expense you had to deal with? How did you pay for it?