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How to Budget for Unexpected Expenses

Every morning, budgeting friends, we all wake up, lace our shoes, and hit the ground running. Money goals? We’re gettin’ after ’em. Temptations? Out of our way.

But then . . .

Sometimes we hit the wall of unexpected expenses. And it feels like one step forward and 22 steps backward with money plans out the window. After all, we can’t anticipate what we don’t see coming.

Or can we?

The best—and maybe only—way to stick to a budget when unexpected expenses pop up is to expect them. Don’t wait for sneaky bills or last-minute obligations to find you. Be on the lookout! Make room for unexpected expenses, and instead of hitting a wall, you can hop a hurdle. Don’t worry. We’ll show you how.

Are Your Expenses Unexpected or Overlooked?

Let’s play a little game called Unexpected or Overlooked? Cue theme music. Are you ready? It’s 2:00 p.m. on a Saturday and you just cozied up on the couch with a good book when . . . dingdong! It’s your mother-in-law!

Unexpected or overlooked?

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Sure, you didn’t know she was coming today, but did you think she’d never visit? Quick! Slip the sweater she made on little Johnny and serve some of that coffee she loves—the kind you keep in the pantry for such a time as this. (Look at you go!)

This is the same game we play with our budget. Most of our surprise costs aren’t unexpected. They’re just overlooked. We’re talking field trips, vacations, birthday parties, annual membership fees, car repairs and, yeah, even out-of-the-blue guests.

You can plan for all of these things just like you plan for your mother-in-law. Sit down with your spouse or accountability partner and talk through expenses that might come up over the course of a year. And we mean everything. There’s no wrong answer here—this is an opportunity to get all of your unexpected and overlooked expenses on the table.

Of course, there will be times when an expense catches you completely off guard. We’ll talk about that later. But for now, let’s look at some of the so-called unexpected expenses you might want to add to your list.

Common Overlooked Expenses: Home, Car, Kids, Health, Seasonal, Misc.

List Your Possible Overlooked Expenses

When brainstorming overlooked expenses, think of them by category. Our categories are below, but feel free to come up with your own! Add to our list, cross off items that don’t apply to you, and work until you’ve exhausted every corner of possibility.

1. Home: maintenance and upkeep, quarterly bills, property taxes, pest control, furniture replacement, moving costs and appliance repair.

2. Cars: maintenance and repairs, tires, oil change, car tag, toll fees and traffic tickets.

3. Kids: new clothes, field trips, birthday gifts, school supplies and extracurricular activities.

4. Health: co-pay for doctor’s visits, medicine and prescriptions, new glasses or contacts, braces, birth of a new baby, and maternity leave.

5. Seasonal: landscaping, summer and holiday travel, Christmas gifts, Halloween costumes, and outings with family, coworkers or friends.

6. Miscellaneous: repairing and replacing phones or computers, pet care, annual membership fees, weekend guests, baby shower gifts and wedding travel.

Build Forgotten Expenses Into Your Budget

List in hand, you now hold a key to your financial future. All you need to do is put your knowledge to work in the following ways:

1. Estimate your overlooked expenses. Go down your list to determine how much each item will cost over the course of one year.

You may be guessing on many of these, so do your best to make educated guesses—look back at past years, contact the car repair company, or do a little research online. For things within your control, like gifts and landscaping, set a limit that seems reasonable.

Divide each yearly total by 12—that’s the amount you should save each month for those expenses. Now you won’t feel pummeled by big charges all at once.

Important to note: Change the math for expenses that are just around the corner. If, for example, you’re beginning this process in October and need to save $600 by Christmas, you’ll want to divide your total by three instead of 12. Set aside $200 a month between now and December and pay for your gifts with cash!

2. Set up a sinking fund in EveryDollar. Not sure what we mean by sinking fund? A sinking fund allows you to slowly save up for a specific item you know you’ll need in the future. For example, you may want to buy a new car next year. If the car you want is $6,000, you’ll need to put $500 a month in your sinking fund to be ready for that purchase.

With an EveryDollar sinking fund, you can build overlooked-but-not-unexpected expenses right into your budget and keep track of how much you’re saving as the year goes by. Simply create budget categories for each item and select the drop-down menu for “fund” on the right. You can enter how much you’ve saved so far and how much you’d like to save overall.

When setting up your funds, try to lump a few items into one category. For instance, if you don’t have a Health Savings Account (HSA) you could create a “health” category for copays, prescriptions, glasses and contacts. But your 11-year-old and her braces are on their own—their own category anyway.

Important to note: Put your sinking fund money in a safe spot with easy access. A checking account or a savings account with check-writing privileges should do the job.

An Emergency Fund Keeps Unplanned Expenses From Derailing Your Money Goals

An Emergency Fund Keeps Unplanned Expenses From Derailing Your Money Goals

What about those expenses that are truly unexpected, like an accident or a layoff?

Sometimes the walls we hit really are walls, and there’s no hopping over them. A recent survey found that it would take just $500 in unexpected expenses to wipe out the cash supply of most American households.¹ You can blow through $500 quickly with a faulty HVAC unit or a major illness. That’s why we all need an emergency fund.

An emergency fund is money set aside for—you guessed it!—emergencies. We recommend starting with a beginner emergency fund of $1,000. From there, once you’re debt-free, move on to a fully funded emergency fund covering three to six months of your current expenses.

What to Do When an Unplanned Expense Hits

You’re all set with a sinking fund built into your budget and a growing emergency fund at the ready. Here’s what you should do when an out-of-the-ordinary expense comes your way.

1. Do you have the money set aside in a sinking fund? Pay up and smile. That was easy.

2. No money planned for this one? Ask yourself these questions—and look for all yeses—before raiding your emergency fund:

  • Is it unexpected? (Overlooked doesn’t count here.)
  • Is it absolutely necessary?
  • Is it urgent?

Example: Needing to repair the furnace in the middle of winter is unexpected, urgent and absolutely necessary, but wanting to redo an ugly-but-functional bathroom is not. Start a sinking fund for the bathroom and use your emergency fund for the furnace.

3. Don’t have the money but it doesn’t qualify for emergency-fund status? Try one of these options on for size:

  • Get by while you save up.
  • Shop around for a better price.

Example: If your phone screen is cracked, use it while you save up for a new phone. In the meantime, shop around for the best price on a new phone or even a repair.

4. Make a note of the actual cost. Use this knowledge to adjust your savings moving forward.

With EveryDollar, you can save up your emergency fund and build a sinking fund for overlooked expenses right into your budget. Run with confidence, friends. Nothing is stopping you now!

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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