One thing that’s inevitable when it comes to your budget? Unexpected expenses. It never fails. There will always be something you forget or something you had no idea to account for. Instead of throwing your budget out the window when unexpected expenses pop up, start saving for them! Not only will it help your budget, but it’ll also help your peace of mind! Check out my tips on how to start saving for unexpected expenses today!
How to Start Saving for Unexpected Expenses
#1 – Assess your current savings
Before you start saving for unexpected expenses, let’s assess what you currently have in savings. What does your savings look like right now? What is that money being saved for? If the savings you currently have doesn’t have a purpose, leverage a portion (if not all) of the savings as your new “unexpected expenses” savings!
If the savings you currently have does have a purpose, ask yourself a few questions. First, when will you be using the savings? If it’s an emergency fund, you may want to consider taking some of it specifically for unexpected expenses…which could be viewed as emergencies. If you will be using the savings in the near future, ask yourself what you should have left after it’s used.
Depending on if you need all of the savings for its intended purpose, you may not have anything left over. That’s fine, it just means we’ll need to start from scratch with your new “unexpected expenses” savings. The bright side? You’re fully capable of saving your money!
#2 – Review your budget for potential savings opportunities
If you’re starting fresh with your new “unexpected expenses” savings, I suggest looking over your budget for any potential savings opportunities. Can you take a portion of your current savings and allocate it towards your new “unexpected expenses” savings? Can you cut back in certain categories to help you save more?
Reviewing your budget allows you to make adjustments with what’s currently happening with your money, so you can get where you’re trying to go. You may not have much room to spare, and that’s totally okay. Anything you can find in your budget to save for unexpected expenses will help you in the long run.
You may want to consider putting in extra hours or bringing in a little more money – especially if your budget is already tight. An unexpected expense can throw anyone’s budget out the window, even more so when there isn’t much wiggle room to begin with. Be proactive instead of reactive and working on bringing in more money.
#3 – Open up a new savings account just for unexpected expenses
Once you’re ready to start saving for unexpected expenses, or you have a lump of cash that can be saved for unexpected expenses, it’s time to make sure you have an account for it! I suggest opening a new savings account and labeling it “Unexpected Expenses”. A high-yield savings account will do just fine, but you may want to consider opening this as a secondary account at your normal bank.
A word of caution, though. If you are tempted to spend money because you see it, go with a high-yield savings account. If you can control yourself, keep the account at your primary bank. Unexpected expenses don’t always leave us with much time to drum up the cash. Having the account close by makes it easy for you to leverage the savings right when you need it.
You can always test it out too! If you find you’re spending the money when you shouldn’t be, or you don’t have back to back issues, you can always switch to a high-yield savings account. No one says your first option has to be set in stone.
#4 – Consider a new budget category
Another option to consider when savings for unexpected expenses is adding a new category to your budget. Adding the category “Miscellaneous” or “Unexpected Expenses” into your normal monthly budget allows you to always have money set aside for that category. This is an exceptionally good idea if things are constantly popping up on you.
You’ll want to be realistic with how much of your income you can allocate to this category. Follow step #2 listed above, and instead of the spare money going to a savings, the spare money can be allocated to your new budget category.
This option works best for me. I have a true emergency fund, which can cover those pricey unexpected expenses. However, having the “Miscellaneous” category in my budget usually leaves me with more than enough to cover the smaller one-off expenses that tend to pop up. Again, don’t be afraid to test a few methods out and find what works best for you!
#5 – Rinse and repeat
I have a handful of clients who hate touching their savings. I have to remind them that doing so is perfectly normal, and the exact purpose for the savings! If you’re saving for unexpected expenses, they will happen. You will need to use your savings to cover those unexpected expenses, and that’s okay! In fact, imagine if you didn’t have savings to use. That would be much worse than taking from savings that’s designed to be used.
I say that because you’ll need to rinse and repeat the steps above every time an unexpected expense pops up. I want you to be comfortable with taking from this particular savings because that’s exactly what it’s there for! This savings is designed to be used regularly, as things come up. Always keep that in mind. But, also keep in mind that you’ll need to rebuild the savings every time you use it. Eventually, it’ll be second nature. These are things you just need to be mindful of when you’re first starting out!
If you’re struggling to allocate your income properly, schedule a free consultation with me now and let’s work through it together!
Related: 10 Sinking Funds to Include in Your Budget
As I said above, unexpected expenses are inevitable. None of us can escape them, so the best thing we can do is plan for them ahead of time! The best way to do that is by saving for them. The tips above will help you start saving for unexpected expenses! Do you have a savings for unexpected costs? What’s your method of saving for those things? Post a comment below to share!