If you live on a pretty tight budget, unforeseen expenses are the one thing that might stress you out, the one thing that can screw up all your plans. So how to deal with such unforeseen expenses?
It comes down to 3 things: Anticipate – Prevent – Insure
Before digging in, let’s be clear about what an unforeseen expense is and what it shouldn’t be.
What is an unforeseen expense?
An unforeseen expense is something you could not have anticipated and you must pay, or you’ll basically end up in jail or at least in a lot of troubles.
An unforeseen expense should only relates to your basic needs and the needs of your loved ones.
It is linked to something that you could have not predicted, something exceptional.
This sounds very restrictive because it is.
If you own a car, you know you’ll have to maintain it and change the tires, the brakes etc. You know it will eventually break down and cost a pretty penny to repair, if repairable. You know you’ll need to buy a new car at some point.
You have teeth, so you know you can get cavities and you know that if you don’t handle the issue early, the consequences might be that you’ll need a crown or an implant. This is not unforeseeable.
If you have children, you know they will get sick and probably do something stupid at one point which will lead, at best, to a broken arm. You’re lucky if it doesn’t happen. Same with your pet really!
Are you, yourself, into fairly dangerous activities? Do you like skying, rock climbing, surfing, something crazy? You know that something might happen to you. Sure crossing a busy street is maybe the most dangerous activity of them all, but if you are realistic, you know your sport activities could lead to injuries.
Unforeseen expense really only relates to something that you could have not imagined happening. An accident maybe, a promotion which takes you on the other side of the World, or maybe you got abducted by aliens! OK not that.
99.999% of the things that happen to us, have happened to someone else in the World, so it is hard to consider anything as unforeseen. Even accidents really. Few of us, go through life without having had any.
Anyway… The definition of what an unforeseen expense is, might not be that important. What matter most is how you handle it.
Anticipate unforeseen expenses
First, you need to anticipate. Again if you have a car, you’ll have repair expenses and some will be pretty costly.
You have teeth? Get them checked regularly.
You have children? Well, I don’t know, cover them in foam maybe? #ChildFree
If your house appliance is old, decide what will absolutely need to be replace and by what.
So basically, check every area in your life and decide what is important. What will need to be repaired or replaced. If you are realistic, you may come to understand that you didn’t need 3 TVs in your home, that you can make bread without a bread machine, that not everything needs to be replaced… easy money saved!
You can split things into those categories if it helps:
|Assessment of:||Analysis & risk evaluation based on:|
|Yourself||Know health issues, weak points, family antecedents, bad habits|
|Compagnon||Same as above|
|Children||Same as above|
|Pet||Common health issues related to breed, behavior issues, risks of poisoning|
|House & installation||House condition and age of installations|
|House furniture & appliance||Condition, age, up-cycling opportunities, real need|
|Electronics||Condition, age and need|
|Car||Maintenance & repair schedule – upgrade|
|Sports||Risk analysis based on the sport & expertise|
|Other activities (inc. travel)||Risk analysis based on the activity|
Once you have anticipated in all major areas of your life, you can evaluate the corresponding potential expenses and eventually save accordingly. But first, you can reduced the risk.
Prevent unforeseen expenses
There are a lot of expenses that can be prevented.
Good maintenance of your car, your home, your body, your appliances and even your electronics, will extend their lives (and yours) significantly.
To prevent unforeseen expenses linked to stuff you own, always start by choosing the most durable, easy to self maintain and cheapest to maintain option that there is. An Italian Moka pot will always be a better option than a Nespresso coffee machine to make coffee. You can easily learn how to repair a bike, but it will be very difficult to repair your car, especially if new.
Own less! It seems so obvious that I hesitate to write it. Live a simpler life, head toward the minimalist mouvement, declutter… The less stuff you own, the less expenses related to such stuff you’ll have.
You are under no obligation to have children! Yes, really!! That alone should prevent a lot of unforeseen expenses!
Learn new skills to maintain your belongings or upgrade them. Yes sewing can be useful! It can save the suit you just bought. Up-cycling can save you a lot of money too, if you need to move or if you need a new piece of furniture because your dog ate half of your coffee table. Any sort of technical skills like plumbing or electricity will come handy to a homeowner.
And then, starting the obvious again… don’t be stupid and take unnecessary risks! You can still have fun, while deciding to not do any extreme activities. At the very least, you should know your own limits.
The world of insurance is fascinating! You can pretty much insure any type of risk.
Obviously some insurances are just mandatory (car insurance, home insurance) and others might be superfluous. You have to navigate and find what is right for you, what you really need. Your risk assessment should make, deciding what insurance you need, easy.
Once you have insurance for something, don’t be afraid to use it.
For years, I paid my home insurance without ever using it. I think I was taught earlier on, by my parents, that if you use your insurance, the cost of it will invariably go up and it will cost you more in the long run, then if you handle the issue you have, by yourself.
This is so not true! Well, it must have limits, but within reasons, it isn’t true. I an really thankful my attitude changed a couple years back. When I have a problem now, I first consider contacting my insurance company, to see if it is something covered.
Yes, you should have an emergency fund!
Hopefully, from the above, you have come to realize that very few expenses are really unforeseeable. With a good reality check, with the right amount of prevention and the appropriate insurance coverage when needed, you should have very few, truly unforeseen expenses.
Despite this, indeed you should save for emergencies or just for the expenses you know will eventually happen, but don’t know when (like replacing your car).
How much you need to have in this emergency fund depends of your lifestyle, your environment and your needs. If you have a budget you follow closely, you should know exactly how much you spend and on what.
Most people recommend to have 6 months to one year of expenses saved. So if you loose your job or are unable to work for a certain period of time, you are covered. This is not truly an emergency fund. This is good planning to not end up in the street, starving.
If you’re going to have to buy a new car, it shouldn’t be at the expense of your basic needs, so save accordingly.
Saving money seem absolutely impossible to a lot of people who live paycheck to paycheck, with pennies left on their bank accounts. Although I have several times admitted to being a white privilege woman, living in a country where breaking my arm would not put me into financial distress (thanks to social security of course), I have trouble understanding why people remain in such financial distress (“remain” is probably the wrong word here but I don’t know a better one).
I’m sure that for some, it is truly close to impossible to get out of it, not without a helping hand or sheer luck. But I also believe that for a lot of people, it was avoidable to start with and could still be managed. Yes, with lots of efforts but still.
Before you shout and scream at me saying I just don’t understand, do know this: I have myself experienced having very little on my bank account. I have had period of my life where I earned minimum wage and even below. Yes, I worked in fast food chains and waited tables, living on tips and sleeping on a mattress on the floor. Later, I worked my ass off, to earn a degree with night classes, which lead me to earn slightly more. I was still poor because I spent way too much on things, I didn’t really need. But things eventually became clear and I completely reverse the situation. I am now able to save money, because I changed my lifestyle, not because I earn a lot. So, indeed, I may still be a white privileged gal, but I have had my shares of lows and these were pretty low.
So get savings!
Future seems unclear to all of us, although one thing is pretty sure at this point: things are not going to get better. The Covid health crisis and financial disaster looming, the environmental crisis… the only remaining question is how bad it’s going to be.
So, to me it feels crucial to have savings. A safety net which covers most expenses including the “unexpected” ones. But it is just as crucial to limit such expenses, to live a simpler life and to develop the skills required to do so.