The Best Laid Plans…

Let’s face it. No matter how perfectly you plan your expenses, life will always throw you those unexpected curveballs that could wreak havoc on even the best of budgets. After all, it’s impossible to account for everything that could possibly happen to your life. I’m not just talking about the real emergencies like a broken car you need to get to work. There are also things like weddings to attend and your kid’s piano lessons…not exactly “emergencies” but not quite frivolous spending either. Here are some ways to prevent these expenses from derailing your financial plans:

1)      Dip into your emergency fund. Many people have way too loose a definition of “emergency” while others seem reluctant to ever touch their savings at all. If it’s a real emergency, that’s what the money is for. Just be sure to rebuild your savings afterwards.

2)      Try to plan ahead. Look at your calendar and see if there are any possible upcoming expenses you can plan for. Easy examples would be a vacation or holidays. Estimate how much you think you’ll spend and then divide that amount by the number of months you have until the event so you can make saving for it part of your budget.

3)      Reduce your other spending for that month. Another option is to immediately adjust your spending. For example, I personally put a certain amount away each month in a discretionary checking account. If I have an unusually large expense in one month, it means I have less in my discretionary account for things like eating out, shopping, and entertainment. Vice versa, if I managed to spend less than I allotted, I can roll that money over to the next month to be splurged at a later date.

4)      Go in debt. Sometimes you have no choice but to go temporarily in debt if you have a really important expense and no other way of paying for it. Keep in mind that this should be a last resort because once you go down the dark path of debt, it can be easy to keep slipping down that slope.

But if you have no other choice, look for low cost sources of credit. Credit cards sometimes offer low-interest “balance transfers” that you can write a check against but those teaser rates can be short-lived. Home equity loans and lines of credit are typically low-interest and tax-deductible but you could lose your home if you can’t make the payments.

Borrowing against your car is another source of low-interest credit but your car is on the line. You can typically borrow against your employer’s retirement plan and pay yourself the interest but you lose what you could have earned on that money and there’s a chance of having to pay taxes and early withdrawal penalties if you leave your job with an outstanding balance. Finally, peer-to-peer lenders like Prosper and Lending Club can be relatively low interest sources of credit.

5)      Just say no. If none of the above sound feasible or appealing to you, your best option might be to just say no. You don’t have to go to every destination wedding or pay for all of your child’s hobbies if you can’t afford them or simply have more pressing financial priorities. Remember that for every “yes,” you’re saying no to something else (like becoming debt-free or financially independent earlier), whether you know it or not.

How do you deal with unexpected expenses? Do you have any strategies or success stories to share? If so, feel free to leave your thoughts in the comments section below.

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