How To Budget For Unexpected Expenses (2024)

Budgets are incredibly useful, but it’s important to remember that while they look great on paper, they don’t always go according to plan.

Sometimes things remain in our control: you have to exercise rigorous discipline to buy only the essentials at the grocery store or risk driving your food budget through the roof, for example. But other times we’re hit with the unexpected, and these expenses can really wreck your budget.

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Examples of Unexpected Expenses

The first step towards budgeting for unexpected expenses is to know what they are. Once you are aware of the most common unexpected expenses that plague households, you can prepare for them. Once these expenses are on your radar, they really aren’t “unexpected” anymore. A better term for them would probably be “irregular” expenses.

Here is a list of common irregular expenses that you will need to be thinking about and preparing for.

1. Back-to-School

If you have children, your expenses will increase in the fall when your kids head back to school.

Outfits, shoes, backpacks, lunch boxes, pencils, notebooks, folders, binders, calculators and even the ominous tissue boxes and hand sanitizer dispensers that grace every school’s supply list are enough to frazzle any parent. And if you have several school-aged children, you can kiss extra cash for the month goodbye, unless you shop wisely and plan ahead for the back to school frenzy.

2. Broken Electronics

I can remember back when I was in college I was studying one day in a coffee shop. I turned to say “Hi” to someone I knew and I accidentally knocked into my coffee cup with my elbow. An entire cup of coffee spilled directly on to my laptop keyboard.

Two days later I was spending over $400 at Best Buy for a new computer. Today, phones are an integral part of our work and personal lives. Yet they can be dismally fragile devices. With one ill-fated drop, your phone can suffer a shattered screen or destructive water damage. It seems like electronics are built to be broken. Yet the moments they break are always when we seem to least expect them to.

3. Car Repairs

Every mile that you drive brings you one mile closer to your next break-down. I know that sounds incredibly pessimistic, but unfortunately, it’s also true. It’s not a questions of “if” your car will need repairs, but when. And if you don’t want your next car repair to add severe financial stress and anxiety to your life, you need to be thinking about saving for car repairs on a monthly basis.

4. Clothing

Few of us spend the same amount of money on clothes each month, but instead tend to add to our wardrobe in big spurts. For most of us, are clothes-buying sprees tend to pop up when we are transitioning from one season to another, like from summer to fall.

In September, for example, you may buy no clothes at all, but in October you may all of the sudden need to buy sweaters and jackets to deal with the colder weather.

5. Holidays

Unless you’re a complete scrooge, you’ll be hitting the shops to buy holiday gifts for your family throughout the year. Birthdays and major religious festivals are the main occasions for gift-giving, and if you have a large family, that’s enough to make you plow through an entire paycheck simply from buying tokens of appreciation. Budget for the holidays or get creative.

6. Home Repairs

Whether it’s something small like a leaky faucet or large like a broken-down AC unit, when you own a home you can guarantee that you are going to have repairs.

Just last month, the hot water water in my home gave up the ghost and had to be replaced. Issues like these are stressful enough on their own without having to deal with worrying about where the money is going to come from to pay for the repair.

7. Medical Bills

Sicknesses and accidents pop up in the least opportune times. I learned this first hand last year when our 1-year old son had an emergency room visit during our vacation in Philadelphia. In the middle of the night, he he was hit with a terrible croup attack that nearly stopped his breathing.

After taking him to the nearest hospital to our hotel, they transported him by ambulance to Children’s Hospital of Philadelphia. I never expected to be sitting in a hospital room with my son on our vacation, but it perfectly illustrated the fact that medical emergencies simply don’t follow our schedules. They will happen when you least expect them.

8. Weddings

A wedding is a major event in a person’s life, and if you’ve been honored with an invitation, it’s important for you to make every effort to get there, even if you live out of town. Travel costs, clothing and gifts for the happy couple can all be expensive. Keep an eye on your cousins, nieces, nephews, children or grandchildren.

If any are in a serious relationship, it’s only a matter of time before a wedding is announced. Make a note of it in your budget.

How to Prepare for Unexpected Expenses

Are you ready for these unexpected expenses? Here are some ways to prepare yourself and your budget for the unknown.

1. Look to the Past to Prepare for the Future

One of the advantages that you get from saving all your receipts is that it gives you the opportunity to look back over time at your spending patterns. For as long as I can remember, my dad has religiously saved every receipt from every purchase he’s ever made for this very purpose.

There’s only one problem with this. If you are the kind of highly motivated person (like my dad) who saves every receipt, then planning and organization probably isn’t your weakness in the first place.

But there is hope for all the rest of us normal earthlings who are never going to have the discipline to save every receipt, but still want to get better at planning for unexpected expenses. You can access to the same spending pattern data by simply using one of the many online budgeting tools that can connect to your bank accounts and credit cards.

Mint, YNAB (You Need a Budget), and Personal Capital are 3 of the most popular budgeting tools that offer this functionality, but there are many more.

2. Utilizing Budgeting Tools

If you are struggling with planning for irregular expenses, you need to start using one of these budgeting tools immediately. It’s important that every single expense is accounted for and not overlooked.

Once you have some data to work with, use that information to formulate an educated guess about how much money you will spend on each irregular expense during a given 12-month span. Once you have that number, divide it by 12. That’s how much you want to put away on a monthly basis for each individual irregular expense.

For example, let’s pretend that after examining your spending history you see that you spend about $600 a year on clothing. When you divide $600 by 12, you get $50. This is how much you should try to budget for clothes each month. On months that you use less than the full $50, you can roll the left-over amount to the next month.

3. Automatically Incorporate Extra Expenses Into Your Budget

It’s a good idea to round up when budgeting. You think you’ll only spend $100 on groceries for the week? Budget for $125 anyway.

This can help you be prepared for small, everyday unexpected expenses. At the time it doesn’t seem like much if you spend an extra $10 at the store, but if you spend an extra $10 every time you go out, it will add up quickly.

Different ways to factor unexpected expenses into your budget

First, prepare your baseline budget. In other words, create a budget that can support your lifestyle without demanding too much sacrifice and without being excessively lavish. Don’t worry about factoring in extra expenses just yet.

Next, trim down your baseline budget to create your bare-bones budget. This is a budget that may require some sacrifices on your part (less money toward entertainment or traveling, for example) but will nonetheless meet the requirements of your daily life and will pay your bills.

Then, take your ideal budget in the opposite direction and round everything up. If you think you’d spend $225 on your electric bill, round it up to $300. Consider this your “ballooned” budget that takes into account hidden, unexpected expenses.

Now that you have the three budgets mapped out, put them to good use. Here’s a suggested method:

  1. Consult your ballooned budget when paying bills. If you pay $250 on that electric bill rather than the $300 you marked down in your budget, set aside the extra $50 into an emergency fund.
  2. Consult your baseline budget when paying for any extra luxuries, like vacations. Try to stay below the baseline budget for these expenses. For example, if you have $2000 in your baseline budget for a trip, try to stay below $2000 when making all of your plans and reservations. And if your ballooned budget shows $3000 for trips, set aside the difference (in this case, $1000) between the two budgets into an emergency fund.
  3. Your bare-bones budget should give you your guiding parameters in the event of an honest-to-goodness emergency. Spend money on only the essentials for day-to-day life so that any leftover money can be used for the crisis that has appeared in your life.

Using these three budgets as a guide, you will have not only a built-in cushion for smaller unexpected expenses, but also the means to start and maintain a robust emergency fund.

Conclusion

The bottom line is that you want to turn as many unexpected expenses as possible into expected expenses.

Once you do, you will feel calm and prepared when irregular expenses surface and will find yourself dipping into your emergency fundmuch less often to pay for them.

If you have other strategies that you use to prepare for unexpected expenses, we’d love to hear about it on Facebook or Twitter!

How To Budget For Unexpected Expenses (2024)

FAQs

How To Budget For Unexpected Expenses? ›

Create an Emergency Fund

An emergency fund can offer you a quick and simple way to get some extra cash to cover unexpected expenses - without needing to dip into your monthly budget. Essentially, it's just like a savings account, only you specifically set it up in order to cover unexpected expenses as they come up.

How to account for unexpected expenses in a budget? ›

Create an Emergency Fund

An emergency fund can offer you a quick and simple way to get some extra cash to cover unexpected expenses - without needing to dip into your monthly budget. Essentially, it's just like a savings account, only you specifically set it up in order to cover unexpected expenses as they come up.

How much money should you have for unexpected expenses? ›

Ideally, you will want to build an emergency fund that will be able to cover your essential expenses for 3 to 6 months. But don't be intimidated by that figure. It's okay to start small. Even a few dollars saved each payday can make a big difference over time.

How to budget for miscellaneous expenses? ›

Make a list of all the miscellaneous expenses you can identify. Assign an estimated amount to each item. Add 10% to each amount as a buffer to help you pay for costs you may have underestimated or missed. Add up the cost of all miscellaneous expenses and divide by 12 to get an amount to set aside each month.

What fund can be used to pay for unexpected expenses? ›

An emergency fund is a cash reserve that's specifically set aside for unplanned expenses or financial emergencies. Some common examples include car repairs, home repairs, medical bills, or a loss of income.

What is the 50/30/20 strategy? ›

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

Can unexpected expenses make it hard to stick to your budget? ›

Whether it's a medical emergency, a car breakdown, or a burst pipe, the unexpected can cause a strain on your budget and your daily routine. Planning can help you be better prepared for unexpected expenses, including knowing what options may help you budget during an emergency.

What are the top 3 expenses? ›

The three biggest budget items for the average U.S. household are food, transportation, and housing. Focusing your efforts to reduce spending in these three major budget categories can make the biggest dent in your budget, grow your gap, and free up additional money for you to us to tackle debt or start investing.

How much should you save each month for unexpected expenses? ›

An emergency fund is money set aside for—you guessed it—emergencies. Start with a starter emergency fund of $1,000. From there, once you're debt-free, move on to a fully funded emergency fund of 3–6 months of your current expenses.

How much should a 30 year old have saved? ›

Fidelity suggests 1x your income

So the average 30-year-old should have $50,000 to $60,000 saved by Fidelity's standards. Assuming that your income stays at $50,000 over time, here are financial milestones by decade. These goals aren't set in stone. Other financial planners suggest slightly different targets.

What is a reasonable monthly budget? ›

We recommend the popular 50/30/20 budget to maximize your money. In it, you spend roughly 50% of your after-tax dollars on necessities, including debt minimum payments. No more than 30% goes to wants, and at least 20% goes to savings and additional debt payments beyond minimums. We like the simplicity of this plan.

What makes a budget a zero-based budget? ›

Zero-based budgeting is when your income minus your expenses equals zero. Perfect name, right? So, if you make $5,000 a month, everything you give, save or spend should add up to $5,000. Every dollar that comes in has a purpose, a job, a goal.

What are considered household bills? ›

Housing expenses consist of shelter (mortgage payments, property taxes, or rent; maintenance and repairs; and insurance), utilities (gas, electricity, fuel, cell/telephone, and water), and house furnishings and equipment (furniture, floor coverings, major appliances, and small appliances).

What is an example of an unusual expense? ›

However, some common examples of unusual expenses include medical emergencies, car repairs, home renovations, and unexpected travel expenses. These expenses are usually not part of our regular budget and can quickly deplete our savings if we're not prepared for them.

How many Americans can afford a $1000 unexpected expense? ›

Only 44% of Americans can afford a $1,000 emergency expense, says Bankrate.

How much emergency cash should I have? ›

How much should you save? While the size of your emergency fund will vary depending on your lifestyle, monthly costs, income, and dependents, the rule of thumb is to put away at least three to six months' worth of expenses.

Is $30,000 a good emergency fund? ›

Most of us have seen the guideline: You should have three to six months of living expenses saved up in an emergency fund. For the average American household, that's $15,000 to $30,0001 stashed in an easily accessible account.

How much should I have in my emergency fund? ›

PNC recommends that you consider keeping at least 3-6 months of your essential living expenses in an emergency fund to cover unexpected expenses, or loss or reduction of income.

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