Dealing with Unexpected Expenses
Here’s our quick guide to dealing with unexpected expenses without incurring debt:
Always keep an emergency fund in place to cover unexpected expenses.: Otherwise, you’ll have to turn to credit. This is the single most important thing we do to deal with unexpected expenses and remain debt free and it has saved us more times than I can count.
Research the most cost effective option, taking into account not just the base price of the item, but other “hidden” costs as well such as energy costs, the likelihood of additional repairs, labor if it has to be installed, etc. Look into used items, if applicable. Crunch the numbers to determine the best approach, rather than assuming you have to buy a whole new item.
Don’t rush to buy the first thing you see: In most cases, you can get buy for a few days with alternatives or temporary repairs, giving you a chance to find the best price or negotiate a good deal. If it’s a medical expense and not a life threatening emergency, shop around with various professionals and look into smaller towns. Sometimes there is a big difference in what medical providers charge for the same services. (Example: Early in our marriage my husband had to get a root canal and other dental work. The cost his dentist quoted was $1,500. But by going to a dentist in the small town next to our larger city, he was able to get the same work done for $750, saving us a lot of budgetary pain.)
Reduce other expenses immediately until the emergency fund recovers from the expense.
Don’t panic: Most unexpected expenses are not emergencies that have to be dealt with right now. You can live without a heater or AC for a couple of days, you can cover a leaky roof with a tarp, and you can find ways to get around the use of most appliances. Unless it’s a medical emergency, you have time to find a decent deal, compare quotes, determine your needs so you don’t buy more than you need, and crunch the numbers to work in your favor.
Don’t buy more than you need.: If the washer breaks, you don’t have to get a new dryer, too. You also don’t have to buy something with all the bells and whistles if you don’t need them. Just get what you need and move on.
Think about deferring the expense until you’ve saved up enough to pay cash: Things like a leaky roof or a refrigerator have to be replaced immediately. But other things, like washers, dryers, or heating and AC units may be able to wait. You can buy a drying rack or clothesline or take your clothes to the laundromat. You can buy a space heater, use a fireplace or buy some fans to get you through the loss of climate control. You can carpool or take public transit if your car dies. It may not be the standard of living you’re accustomed to, but it will buy you time to save the money and avoid taking on debt.
It helps to think ahead: I generally keep an eye on appliance trends and prices, contractors in the area that are reputable and fairly priced, and I know what my health insurance covers at which providers and how much. I don’t spend a lot of time learning these things, they’re just things I pay attention to when I’m out and about, talking to friends who are having work done, or when insurance policies come in the mail. That way, when emergency strikes I’m better able to make decisions. I know where to go, who to talk to and what to look for to deal with the problem. It helps me keep a clear head and it prevents regrettable, rash decisions.
Sometimes, particularly for medical emergencies or things that will lead to larger damages if not dealt with immediately (like leaky roofs), you may have to simply do the best you can with limited knowledge and research time. You may not have time to search for deals and low cost providers. You may not be able to defer the expense. You may have to take what you can get quickly. It is those cases where having an emergency fund will really save your bacon. I cannot stress enough the importance of a well-funded emergency fund to deal with unexpected expenses if you want to remain debt free. That money is often the barrier between you and debt. Unexpected expenses are always annoying and something you wish you didn’t have to deal with, but they don’t have to be the catastrophic road to debt if you act carefully and wisely and keep your emergency fund full.
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