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How To Pay for Unexpected Expenses

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One of the scariest economic statistics these days is that almost 40% of Americans lack enough money to cover a $400 emergency expense. That’s an increase from 32% in 2021.

Unexpected expenses can absolutely derail your financial plans and put a real dent in your future. Despite this, you can still plan for them. With careful budgeting and planning, it’s possible to blunt the worst impacts. It takes dedication and willpower.

If you’re someone who panics at the thought of saving for unexpected expenses, you’re not alone. It’s a big concern for many people. Fortunately, Landmark Bank has helped our customers with their financial needs for years. Let’s walk through the basics of financial planning with tips on paying for unexpected expenses.

Common Types of Unexpected Expenses

Unexpected expenses come in many forms and can catch us off guard. Here are some common examples:

  • Medical Emergencies: Accidents, injuries, or sudden illnesses can lead to hefty medical bills, especially if you require hospitalization or surgery.
  • Car Repairs: Vehicle breakdowns and accidents can result in significant repair costs. Even routine maintenance can sometimes reveal issues that lead to unexpected expenses.
  • Home Repairs: From plumbing leaks to roof damage, home repairs are often unexpected and can be quite costly.
  • Job Loss: Losing your job unexpectedly can lead to a sudden loss of income, causing you to incur expenses you’re not prepared for.
  • Legal Problems: Whether it’s a dispute with a neighbor or an unexpected lawsuit, legal problems can lead to significant attorney fees and court costs.
  • Tax Bills: Sometimes, you may end up owing more taxes than you expected, leading to an unplanned expense.
  • Travel Emergencies: Things like flight cancellations, lost baggage, or health issues while traveling can lead to unexpected costs.

These are just a few examples. The reality is that life is unpredictable, and almost anything can lead to unexpected expenses. That’s why financial preparedness is crucial.

Understanding Financial Preparedness

Budgeting for unexpected expenses is one of the cornerstones of financial preparedness, which is crucial for many reasons.

Firstly, it provides a safety net for unforeseen circumstances, giving you peace of mind and reducing stress related to financial uncertainties. It allows you to handle unexpected expenses without having to resort to borrowing or going into debt.

Secondly, being financially prepared can help prevent serious repercussions that could arise from not being able to pay for necessary expenses, such as medical bills or car repairs. It ensures that you can meet these costs without compromising your current lifestyle or future financial goals.

Lastly, financial preparedness can give you more freedom and control over your life. When you have a financial cushion, you have the ability to make choices and decisions based on what you want and need, rather than what your financial situation dictates.

Immediate Actions for Handling Unexpected Expenses

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Dealing with unexpected expenses can be stressful regardless of your level of preparation. Even if you plan ahead, there’s a good chance you’ll still be caught off guard. Whatever the case may be, it’s essential not to panic. If you’re hit with a surprise expense, don’t do anything rash. Take a moment and think about your options.

Immediate actions you can take to deal with the expense(s) include assessing your financial situation. Can you afford to pay directly for this issue on your own, or is it something you need help with? Evaluate your options. The expense might be covered by insurance. If it is, file a claim as soon as possible. If not, consider savings or a line of credit to help cover the cost.

If possible, avoid using a line of credit — especially a high-interest credit card — to cover the expense. If you have an emergency fund, now is the time to use it! However, if you choose to cover the cost, create a plan for dealing with the aftermath. If you’re using emergency savings, plan to rebuild that fund. If you’re using a credit card, know how you will pay that balance off to avoid interest.

When all else fails and the expense is significant, consider making a call to a trusted financial advisor. They can help steer you in the right direction.

Long-Term Financial Planning for Unexpected Expenses

While one sudden expense can catch you off guard, you’ll want to avoid repeat surprises, and that means carefully planning for the future and saving for unexpected expenses. Before a financial emergency hits, consider taking the following steps to prepare.

Building an Emergency Fund

Your emergency fund is money set aside to cover financial surprises thrown your way. But how can you start one and keep it growing? Take the following actions starting today:

Set a Monthly Savings Goal: This makes it more manageable. Start with a small, achievable goal. For example, aim to put away $50 or $100 a month.

Open a Separate Savings Account: Keeping your emergency fund separate from your regular checking account can help prevent you from dipping into it.

Automate Your Savings: Set up automatic transfers to your emergency fund each time you get paid. What you don’t see, you won’t miss.

Adjust Your Budget: Look for areas in your budget where you can cut back, and then apply those savings to your emergency fund.

Save Your Windfalls: Dedicate at least a portion of any windfalls, such as tax refunds or work bonuses, to boosting your emergency fund.

Remember, this savings account is meant for rainy days. It’s not for things that feel like an emergency but aren’t.

Creating a Sustainable Budget

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The only way to create a good emergency fund is to have a sustainable budget for your everyday expenses. If you’ve never created a budget before, you’ll want to sit down and do this before you start saving.

The easiest way to make a budget is to write your monthly income down and start subtracting your regular expenses first. These include things that don’t often change, such as your mortgage payments or rent, car payments, student loan payments, and other bills.

Once you’ve totaled these items up and subtracted them from your monthly income, it’s time to start creating a budget for your remaining incidentals. Set spending limits for things like groceries, entertainment, and fast food. Consider placing a set amount or whatever is left in savings.

Credit Cards, Personal Loans, and Lines of Credit

Credit cards, personal loans, and lines of credit can be an effective tool for dealing with unexpected expenses, but you shouldn’t rely on them. Carrying a balance on a credit card or loan can become very expensive once you factor in interest.

If you do need to use one of these methods to pay for an expense, try to pay it off quickly. Never open a new credit card to pay for expenses, even if promotional interest sounds good. The impact on your credit score could do more harm than good.

The Role of Insurance in Covering Unexpected Expenses

Insurance can help offset the cost of unexpected expenses, especially if you have a great policy. The major forms of insurance that most people rely on to cover these surprises include:

  • Home insurance: This coverage pays for damages and claims related to your dwelling. It can also cover injuries that occur on your property.
  • Auto insurance: Car insurance covers damages to your vehicle, other people’s property, and medical claims that arise from car accidents in which you’re involved.
  • Health insurance: This insurance pays for expenses that arise from medical treatment and/or preventive care.
  • Life insurance: This coverage pays a death benefit when the insured person dies. These funds can be used to pay for burial expenses, outstanding debt, and as income replacement for that person’s potential earnings.

Most insurance policies are subject to deductibles, which are amounts you must pay before the coverage kicks in. In most cases, home, auto, and life policies are subject to coverage limits.

Consulting with Finance Professionals and Finding Assistance

If you have questions about how to budget, save, and prepare for emergency expenses, you’re not alone. Many people do. One of the best decisions you can make is to find a trusted financial advisor to help navigate these tricky waters. Whether you’re trying to set good financial habits after landing your first job or recovering from a financial issue that’s left you reeling, seeking out professional assistance can make a big difference in avoiding financial catastrophe.

How Banking Can Help Deal With Unexpected Expenses

One of the best ways to secure your financial future is to start with basic banking services that lay the foundation for future success. That means finding a bank that can cover all your bases, from basic checking and savings to helping plan for future financial goals.

Landmark National Bank offers personal and business banking solutions for customers at all stages of life. Visit your nearest Landmark National Bank branch today to speak with a personal bank and open your new account today.

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