Creating a budget involves calculating all of the income you receive, all of the expenses you have to pay, all of the savings you’d like to set aside, and planning accordingly. But what people often forget to do when creating a budget is to plan for unexpected expenses. Unexpected expenses can happen for many different reasons and they can happen to anyone. Below, you’ll find ways to plan for these unanticipated costs so that you can keep your finances on the right track.
What is an unexpected expense?
Unexpected expenses can be things like seasonal expenses, pet emergencies, car repairs, or even home repairs. Because these are unanticipated, it’s very difficult to plan for them or even know how much to set aside in order to deal with them.
How to plan for unexpected expenses
Having to pay for things that weren’t anticipated in your budget can really set your finances back. In fact, according to Statistics Canada, only 61% of Canadians who budget feel confident that they could come up with 2,000$ should an unexpected expense arise. Luckily, there are ways in which you can include them in your budget so that they don’t put a huge dent in your wallet.
1. Look through last year’s credit statements
This is by far the most tedious thing you’ll have to do in order to plan for unexpected expenses. However, it’s also the most helpful. Looking through your past credit card statements for the last year will help you pinpoint all of the unplanned expenses you might have to deal with again. And in doing so, you can include all of these expenses in your budget.
2. Make a list of seasonal expenses
There are some things you just won’t be able to catch just by looking at your past credit card statements. After all, we all change year after year, and it’s doubtful that you’d have the exact same expenses as the year before. Maybe you just bought a house or a new car, or maybe you just got into a new relationship. Many of life’s most unexpected expenses are the ones that come seasonally. These include things like having to purchase winter tires, Christmas gifts, birthday gifts, property taxes, anniversaries, dental bills, etc. In fact, Canadians tend to spend over 700$ in shopping for the Christmas holidays alone! Planning for these ahead of time will make it so that when the time comes for you to pay for them, you’ll already have the money set aside for them.
3. Add everything up and revise your budget
After looking through last year’s credit statements for unexpected expenses and making a list of seasonal expenses you might have to pay, add everything up and divide this number by the number of paychecks you have during one year. That way, you’ll know exactly how much to set aside every time you get paid. If you find that you cannot make ends meet by adding this amount to your budget, then try to think of ways in which you can revise your budget — like cutting down on expenses or finding ways to increase your income.
4. Automate it
The easiest way to ensure that you’re staying on top of your budget is to set up an automatic savings plan. The beauty in automatic savings plans is that you won’t even have to think about doing it — the money will just automatically be taken from our account and be put into a savings account. It might be tempting to spend all of the money you’ve saved as you’re watching it accumulate, but keep your goals in mind and stick to your guns.
If, after calculating all of your expenses and revising your budget, you find that you can no longer make ends meet, don't worry, there are options out there to reduce your expenses and your debt. The sooner you deal with financial hardship, the better.
