How to Prepare Your Budget for Unexpected Expenses

Pop-up expenses can throw a wrench in your monthly budget. Some might take you by surprise, like an unexpected car repair or medical emergency. Others may be non-monthly bills that are due at odd times of the year, like a semiannual insurance premium. The good news is that it’s possible to prep your budget for whatever lies ahead. Here are five common budget busters to watch out for—and how to prepare for them.

Unexpected Home or Car Repairs

If you’re a homeowner or have a car, it’s only a matter of time before something breaks down. Some repairs could set your budget back—or push you into credit card debt. Even with insurance, you’ll still need to meet your deductible if your claim is approved. Experts recommend setting aside 1% to 4% of your home’s value every year for maintenance and repairs. For cars, one benchmark is to budget at least $100 per month for routine care and unexpected costs. Below are some home and car repairs that could add up fast:

Home Repairs

• Repairing or replacing the roof of your home
• Maintaining your home’s heating and air conditioning system
• Addressing an electrical or plumbing issue
• Restoring the foundation

Car Repairs

• Repairing the engine
• Fixing or replacing the transmission
• Replacing the brake line
• Changing a hybrid battery

Budget Saver

An emergency fund is a pool of cash that can help you cover financial surprises. The rule of thumb is to save three to six months’ worth of expenses, but even a small cushion can go a long way. Begin where you are and get in the habit of saving a portion of every paycheck. A high-yield savings account allows you to earn interest on your money—and provides easy access to your funds.

Annual or Semiannual Insurance Premiums

An insurance premium is what you pay to keep your policy active. It applies to homeowners insurance, car insurance, health insurance, and other types of coverage. Some insurance premiums are due monthly, which can make budgeting easier, but others are paid at different times of the year. You might pay your home insurance premium annually, or get a discount for paying your car insurance premium in full instead of monthly. That means you could face a large bill every six to 12 months.

Budget Saver

Planning ahead is key. Review your policy or contact your insurer to confirm your premium amount and due date. From there, you can work that number into your monthly budget. Let’s say your car insurance premium is due six months from now and will cost $1,000. That works out to about $167 per month, which you can set aside in your savings account. You can also look for ways to reduce your premium. Increasing your deductible or modifying your coverage could bring down your costs.

Summer Child Care

Summer break could be a big expense if you’re a working parent. The average cost of day camp is about $87 per day, according to the American Camp Association. For a family with two children, that works out to $870 per week. Some work-from-home parents might skip out on summer camps, but that may make it harder to focus on work, which could affect your job performance and earning power. Planning ahead can make things easier for everyone—and help keep your budget intact.

Budget Saver

Estimate your summer child care expenses sooner rather than later. That might include summer camps, day care, a babysitter, or a combination of all three. You can then begin saving gradually. You can also see if any camps offer scholarships or financial aid opportunities. Another option is partnering with other families to see if you can get a group rate on a babysitter.

Holiday Spending

One Experian survey found that nearly a quarter of consumers planned to spend between $500 and $1,000 last holiday season. What’s more, 56% of respondents expected to finance some or all of their spending with a credit card. It’s never too early to start budgeting for the holidays. Chances are you’ll be more likely to overspend—or accumulate holiday debt—if you’re shopping without a plan. These expenses could derail your budget and make it harder to reach your financial goals.

Budget Saver

First, determine how much you can reasonably spend on holiday expenses. That includes gifts, decorations, holiday travel, food and entertaining, and any potential unpaid time off. Once you have a number in mind, you can break that amount into a monthly savings target. You can also curb your spending by:

• Buying gift items when they’re on sale throughout the year
• Taking advantage of sales events like Black Friday and Cyber Monday
• Dialing down your gift list
• Picking up a side gig
• Putting cash windfalls like a tax refund or work bonus toward holiday spending

Medical Surprises

Between copays, deductibles, and other out-of-pocket costs, an unexpected health situation could topple your budget. That can lead to medical debt that takes years to pay off, making it that much harder to reach your financial goals. Health-related expenses can also apply to your pets. If your dog or cat experiences a medical issue, it could set you back thousands of dollars. That’s on top of routine pet care.

Budget Saver

Building a healthy emergency fund is critical. The following actions can also help protect your budget if you’re faced with a medical emergency:

• Reviewing your medical bills for mistakes
• Negotiating your medical costs, ideally before treatment
• Seeing if your providers offer financial assistance or income-driven repayment plans
• Looking into pet insurance

The Bottom Line

Even with the best budget, financial curve balls can still come your way. A solid emergency fund is your first line of defense. Planning ahead for non-monthly expenses can also prevent financial hiccups.

This all goes hand in hand with maintaining strong credit. If you need to borrow to cover surprise expenses, your credit score could be an important factor. Free credit monitoring from Experian is a simple way to stay on top of your credit report and score at no charge.

For any mortgage service needs, O1ne Mortgage is here to help. Call us at 213-732-3074 to speak with one of our expert loan officers today. We are committed to providing you with the best service and helping you achieve your financial goals.