Many things in life are uncertain. But, one thing you can always count on is surprises. Unfortunately, they are not always good ones. And, sometimes they get expensive. Therefore, you have to learn how to adjust your finances and make room in your budget when this happens. Here are a few sound ideas to help you restructure your budget for these unexpected expenses so they don’t catch you unprepared.
4 Ways to Restructure Your Budget for Unexpected Expenses
A recent survey revealed that 56% of Americans do not have sufficient savings to pay an unexpected expense of $1,000 or more. The fact that so many people are living on the brink of financial instability is concerning. So if you find yourself among them, here are a few ways you can restructure your budget to help you get ahead.
1. Build it into your budget.
Even if you keep detailed accounts and know the exact total of your monthly bills, it’s impossible to anticipate every expense you will have. So, I learned long ago to leave a little room in the budget for “miscellaneous” expenses.
For example, I had to pay the repair cost this month when our dishwasher needed a replacement part. Last month, we used the extra money to cover the cost of gas for a visit to see family on the other side of the state. There was no way we could have planned for these situations. But, it’s for this very reason that I pad our monthly budget with an extra $200 (give or take) when things come up. Not only does it protect our finances, but it also reduces the stress of living on a limited budget.
2. Bolster your emergency fund.
As a student and young adult, I lived paycheck-to-paycheck for years. I earned enough to support myself. However, I ignored my parents’ advice to maintain an emergency fund. I was barely scraping by and didn’t see the point in setting the money aside since I needed it. That was, until my first major car repair.
After the transmission went out, I was left with a difficult choice: either fix my car or make rent for the month. At the time, it felt like an impossible situation. No matter how much I worked, it took months to regain my footing. And during that time, I felt like a huge burden to those around me.
So as soon as I was able, I started bolstering my emergency fund. In the beginning, I contributed $25 from each paycheck. Eventually, it grew into a comfortable safety net for the next unforeseen emergency. We now make sure that we maintain an account with enough money to cover 6 months of expenses should anything happen. For me, the anxiety of teetering on the financial edge was enough for me to take control of my finances and restructure my budget.
3. Reallocate resources.
Once you are down to a barebones budget, the next thing you can do is reallocate your resources and find ways to reduce costs. Here are a few ways you can restructure your budget without taking on more debt.
Reduce the interest payments on your credit cards.
If you carry credit card debt, you are probably paying hundreds of dollars each month in interest. So, one of the easiest ways you can give yourself breathing room after an unexpected expense is to reduce your interest payments.
You might be surprised how willing your credit card company will be to work with you. If you notify them before you miss a payment, they may be able to suspend the interest, waive late fees, or negotiate a lower monthly payment. You could also look into a balance transfer to a credit card offering 0% APR. And, there are also debt relief programs that can save you money by consolidating your bills.
cut out unnecessary spending
When it comes down to tough decisions, you need to learn how to prioritize your spending. Cutting back can be uncomfortable, to say the least. But you have to be able to recognize the difference between wants and needs.
So if you need to borrow from your other budget categories, you have to determine which things you can temporarily give up to recoup the costs. Perhaps you suspend an expensive membership, stop paying for activities, or delay a large purchase until you are more financially stable.
4. Review your monthly spending and the scope of your budget.
Whether you are trying to save, invest, pay down debt, or simply make it to the end of the month, you have to know the scope of your budget. However, the hardest part of any financial management plan is the follow-through. Not even the best-laid plan will be successful unless you consistently work toward your goals.
It requires self-discipline which starts by establishing good habits and holding yourself accountable. I tend to rely on my calendar and set deadlines to keep me on track. This includes notifications for when payments are due, alerts for balance limits, and reminders to make my monthly contributions.
We also schedule regular “health check-ups” to stay on top of our finances. We check our credit reports and meet with our advisors to review the status of our accounts. My husband and I also sit down together to review monthly expenses and remind each other of upcoming ones. This has become much easier with tools that show our spending by category and help us budget more efficiently for the months ahead.
Preparing for the Unexpected
Unfortunately, you can’t predict when an emergency will happen. You never know when you might lose your job, incur a large medical expense, or receive a repair bill. And with so many people struggling in the wake of the economic downturn, it’s becoming even more difficult to prepare for the unexpected.
The key is learning to assess your budget and live below your means so you are not spending more than you bring home. If you notice an imbalance, it’s best to restructure your budget so a financial setback won’t send you into survival mode.
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Jenny Smedra is an avid world traveler, ESL teacher, former archaeologist, and freelance writer. Choosing a life abroad had strengthened her commitment to finding ways to bring people together across language and cultural barriers. While most of her time is dedicated to either working with children, she also enjoys good friends, good food, and new adventures.