{"id":6688,"date":"2023-07-20T06:00:00","date_gmt":"2023-07-20T13:00:00","guid":{"rendered":"https:\/\/www.quicken.com\/blog\/?p=6688"},"modified":"2024-11-18T10:19:13","modified_gmt":"2024-11-18T18:19:13","slug":"how-to-prepare-financially-for-unexpected-expenses","status":"publish","type":"post","link":"https:\/\/www.quicken.com\/blog\/how-to-prepare-financially-for-unexpected-expenses\/","title":{"rendered":"How to Prepare Financially for Unexpected Expenses"},"content":{"rendered":"\n

Sometimes, life catches you off guard and hits you with unexpected expenses in the process. But those unexpected events\u2014both good and bad\u2014don\u2019t have to sidetrack your finances. In this article, we\u2019ll talk about ways to prepare financially before<\/em> life trips you up. <\/p>\n\n\n\n

Want an app that can help? Simplifi makes it easy<\/a> to prepare for the unexpected.<\/p>\n\n\n\n

How to prepare financially for unexpected expenses<\/h2>\n\n\n\n

You have two main tools to prepare for the financially unexpected: establishing an emergency fund and investing in preventative measures. <\/p>\n\n\n\n

1.   Build a savings cushion<\/h2>\n\n\n\n

Your savings cushion isn\u2019t exactly an emergency fund. It\u2019s there to save your budget from inevitable expenses that you know will happen, but can\u2019t predict when <\/em>they will hit. Think car repairs, basic home maintenance, and smaller medical bills like needing new glasses. How much you save depends on your lifestyle and regular expenses, but $500\u2013$1,000 is a great place to start. <\/p>\n\n\n\n

A healthy savings cushion safeguards your finances against these \u201cexpected\u201d unexpected expenses. Having cash on hand means you won\u2019t have to raid other savings accounts or put the expense on a credit card. You\u2019ll also protect your credit score from new inquiries and a sudden debt increase. (Not to mention the risk of making late payments on debts you weren\u2019t planning for.) <\/p>\n\n\n\n

Plus, paying with cash saves money on interest payments and card fees that come with using credit cards. Some businesses even offer discounts for cash payments to help you save more. <\/p>\n\n\n\n

2.   Save up an emergency fund<\/h2>\n\n\n\n

Your emergency fund is the first line of defense between you and an expensive, unexpected hardship. A solid emergency fund contains at least six months\u2019 worth of rent and living expenses (groceries, utilities, transportation, etc.) In theory, it should be able to fully support you through at least six months of job loss. <\/p>\n\n\n\n

If you don\u2019t already have an emergency fund, a budgeting app like Simplifi<\/a> will put you on the right track. You can track your income and expenses and start allocating funds toward your safety cushion, emergency fund, and more! <\/p>\n\n\n\n

3.   Invest in preventative measures<\/h2>\n\n\n\n

Some expenses are too big (or too regular) to cover with your emergency fund. Others have another viable option: insurance. Either way, we\u2019ll look at some of the most common expenses \u2013 expected or otherwise \u2013 you can offset with preventative measures. <\/p>\n\n\n\n

Medical care<\/h3>\n\n\n\n

Medical expenses are among the most common (and potentially bank-breaking) unexpected financial events. Fortunately, you can prepare for these by investing in good insurance. During a medical emergency, a high-quality insurance plan can be the difference between complete coverage and long-term financial hardship. <\/p>\n\n\n\n

Medical insurance is usually obtainable through your employer, which may limit your options. You can also buy private insurance or enroll through Healthcare.gov<\/a> under the Affordable Care Act. <\/p>\n\n\n\n

When considering any health insurance \u2014 especially if you\u2019re job hunting \u2014 examine the benefits package carefully. Consider the trade-offs between premiums, copays, and coinsurance for common or expected procedures. Most importantly, remember that a high-premium \u201cfull coverage\u201d plan may not actually cover everything <\/em>in an emergency. <\/p>\n\n\n\n

Car expenses<\/h3>\n\n\n\n

Many Americans drive daily for their work commute, to run errands, or to take their friends and family members wherever they need to go. For those who rely on personal vehicles for transportation, a sudden breakdown can mean a serious (and potentially expensive) life disruption. <\/p>\n\n\n\n

You can minimize the impact of these disruptions in two ways: <\/p>\n\n\n\n

    \n
  1. buying comprehensive insurance <\/li>\n\n\n\n
  2. performing routine maintenance<\/li>\n<\/ol>\n\n\n\n

    Comprehensive insurance will protect you financially in an accident, regardless of who (or what) is at fault. Meanwhile, frequent maintenance \u2014 oil changes, tire rotations, etc. \u2014 will reduce the chances of a major mechanical failure. <\/p>\n\n\n\n

    Job loss<\/h3>\n\n\n\n

    Layoffs are a difficult reality you may face, especially when the economy sours. In a pinch, a healthy emergency fund paired with unemployment insurance can float you through a period of joblessness. But you can do more to protect yourself with \u201ccareer cushioning\u201d \u2014 essentially, building an employment safety net<\/a> for uncertain times. <\/p>\n\n\n\n

    Start by keeping your resume, LinkedIn, and other career boards up to date to simplify your job search. Stay on top of important career developments by taking classes or courses to gain new knowledge and hone your skills. <\/p>\n\n\n\n

    Networking is also important \u2014 not just for job hunting, but as a source of advice and support. Maintain industry friendships to keep your network wide, and don\u2019t be afraid to impress potential future bosses every chance you get. <\/p>\n\n\n\n

    Another option is to start a side hustle<\/a>. Maybe you make fashionable jewelry, enjoy mixing fancy party drinks, or enjoy being the neighborhood handyman. Whatever your skills, a secondary income source boosts your bank account now and can help you weather tough times later. And you never know \u2013 your side hustle could turn into full-time employment down the line. <\/p>\n\n\n\n

    Household repairs<\/h3>\n\n\n\n

    Household repairs can be incredibly expensive, potentially reaching tens of thousands of dollars. With regular maintenance and solid insurance, you can protect your finances from an eye-watering bill.  <\/p>\n\n\n\n

    Stay on top of household maintenance<\/h4>\n\n\n\n

    Regular household maintenance can help prevent small inconveniences from growing into multi-thousand-dollar repair bills. This can range from changing your air filters and cleaning your drains and gutters to replacing your roof on schedule. <\/p>\n\n\n\n

    Buy good homeowners\u2019 insurance<\/h4>\n\n\n\n

    Good homeowners\u2019 insurance protects you when bigger household expenses pop up. A tree falls and damages your roof. Your house floods during the hurricane of the century. Or the neighbor\u2019s kid breaks an arm in your house. <\/p>\n\n\n\n

    The right homeowners\u2019 insurance may cover all of these. But it\u2019s important to shop smart \u2014 ideally, for a comprehensive coverage policy. For instance, some policies don\u2019t cover natural disasters, depending on the provider and location. You\u2019ll also want to disclose potential hazards like pools and trampolines to ensure total protection. <\/p>\n\n\n\n

    Don\u2019t forget about renters\u2019 insurance!<\/h4>\n\n\n\n

    Renters have their own form of financial protection: renters\u2019 insurance. These policies cover you, your belongings, and certain incidents in the event of emergencies. Every jurisdiction sets their own rules regarding what renters and landlords must cover respectively, so be sure to research what you need. <\/p>\n\n\n\n

    Taxes<\/h3>\n\n\n\n

    Nobody likes to pay taxes \u2013 but over<\/em>-paying is even worse. Take steps to ensure you\u2019re making smart tax moves, like:<\/p>\n\n\n\n