Author Topic: How do you handle LARGE unexpected expenses?  (Read 5657 times)

2Birds1Stone

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How do you handle LARGE unexpected expenses?
« on: November 02, 2014, 08:01:29 AM »
I have been really good about sticking to my $1600/month budget in a HCOL area. This month however I had 3 things pop up unexpectedly that will cause me to have to shell out an unplanned $2000. This really puts a damper on my FIRE date. Since these things are bound to happen in some shape or form in the future.

So whats your approach?

Self-employed-swami

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Re: How do you handle LARGE unexpected expenses?
« Reply #1 on: November 02, 2014, 08:12:17 AM »
If a $2000 non-recurring unexpected expense is changing your FIRE date, your numbers must be really tight.

I handle those expenses either with cash on hand, or with my HELOC (3.5% interest) and then pay it off.  We have a 'house' fund for home repairs (like last month, when the garage door broke, and cost $350 to fix), or the vacation account.  We put $100/week into both.  The vacation account has become more of a savings for gifts/trips/luxury items account, while the house fund is used for other unexpected/expected expenses that we can't float otherwise (like the garage being unexpected, but new tires for the car being expected).

plank

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Re: How do you handle LARGE unexpected expenses?
« Reply #2 on: November 02, 2014, 08:13:27 AM »
Do you mean unexpected or irregular?

thedayisbrave

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Re: How do you handle LARGE unexpected expenses?
« Reply #3 on: November 02, 2014, 08:15:29 AM »
This is the whole purpose of an emergency fund.  But I find there are rarely true "emergencies" so I think of mine as a cash cushion.  Whatever you call it, it's there to bail you out in situations such as the one you describe.

Self-employed-swami

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Re: How do you handle LARGE unexpected expenses?
« Reply #4 on: November 02, 2014, 08:23:26 AM »
Do you mean unexpected or irregular?

Aah, that's a great question, I sort of alluded to it in my post above.

We have the odd unexpected irregular expense, like the garage door repair, but in being a home owner, I plan for there being some sort of $5200/year house/life expense.  Just because you may not be able to name the exact cause of an irregular expense, doesn't mean you can't plan for it, using some sort of statistical calculation of the likelihood of needing something.  Most of the 'emergency' things we've experienced (garage door needing repair to close, so my husband's tools wouldn't get stolen that night, or the time we had the pipes freeze and needed an emergency plumber to fix it) have been in the under $500 category.  The cost of replacing an appliance (we had to replace the everything but the fridge within the first 1.5 years we owned the house, they were all 20 years old) also falls in line with that $500 mark.

In the case of other irregular, but expected expenses have included the furnace last year ($4200) and floors this year ($11,000), we plan and save in advance.  Less money goes into the long term investment accounts in that time, and we try to time them for when we know we'll have extra money coming in, like the summer when my husband taught summer school.

Terrestrial

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Re: How do you handle LARGE unexpected expenses?
« Reply #5 on: November 02, 2014, 08:25:45 AM »
Do you mean unexpected or irregular?

Important distinction.

If they are irregular you should be accounting for them in your monthly budgeting and the money should already be set aside. 

Unexpected - sometimes this just DOES impact your FIRE date. If you were to say get injured on the job and go on disability for a year, or have an unusually severe illness that required thousands of out of pocket medical expenses your insurance didn't cover...there's really not much you can do about that, it's got to come out of your savings and yes it may set you back a bit.   Hopefully it doesn't happen repeatedly and one hopes that emergency savings or other instrument that people use (HELOC) will cover it and you can rebuild the fund.
« Last Edit: November 02, 2014, 08:43:17 AM by Terrestrial »

Prairie Gal

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Re: How do you handle LARGE unexpected expenses?
« Reply #6 on: November 02, 2014, 08:41:02 AM »
I have categories in my YNAB for car replacement, car repairs, household stuff, house repairs, etc. So those things are all budgeted for, and saved up for in advance because I know they are going to happen sooner or later.

For huge, totally unexpected expenses I have my emergency fund.

Jessa

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Re: How do you handle LARGE unexpected expenses?
« Reply #7 on: November 02, 2014, 09:26:51 AM »
Do you mean unexpected or irregular?

Exactly. My car insurance has to be paid in a lump sum every year. It's 3/4 of my normal budget, so I have $50/paycheck go into a separate savings account specifically for that (and registration, excise tax, etc). For something truly unexpected, I would use my emergency savings and then focus on building that back up before putting anything else into investments.

roadtofreedom

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Re: How do you handle LARGE unexpected expenses?
« Reply #8 on: November 02, 2014, 11:00:23 AM »
I have been really good about sticking to my $1600/month budget in a HCOL area. This month however I had 3 things pop up unexpectedly that will cause me to have to shell out an unplanned $2000. This really puts a damper on my FIRE date. Since these things are bound to happen in some shape or form in the future.

So whats your approach?

wow, if your plan is consistent, an unexpected expense of $2000 must not be a problem.

It has a monthly impact of +10%, a huge impact in a FIRE calculator, but the point is that is not a recurrent expense.

In that case, I likely would consider a more conservative scenario including this type of expenses as recurrent expenses (safety margin).

In my own case, I always plan a 16% safety margin every year. It makes me be more comfortable and less stressed with monthly expenses.

Calvawt

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Re: How do you handle LARGE unexpected expenses?
« Reply #9 on: November 02, 2014, 01:48:09 PM »
You have to just factor those items in to your budget.  If you own a house, at some point it will require a new HVAC, for example.  Keeping the cash cushion/emergency fund to avoid credit card debt is crucial.

oinkette

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Re: How do you handle LARGE unexpected expenses?
« Reply #10 on: November 02, 2014, 06:11:55 PM »
If they are truly unexpected AND emergencies...emergency fund. 

If either is not the case, you save up for it.  Your car, house, and body will have issues...this is to be expected. Save up for them.

That's the second reason it exists.  The other being if I lose my job.

I use the fund and then hold off on FIRE funding until I've replaced all of that money.

2Birds1Stone

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Re: How do you handle LARGE unexpected expenses?
« Reply #11 on: November 03, 2014, 05:40:17 AM »
Excellent points everyone!!

I guess I could call 2 of these irregular expenses and one was more unexpected.

One was car related, another a health issue not covered by insurance (or only partially covered and still very costly), and the last was a last minute professional clothing purchase for a Job interview. Needless to say, if the interview goes well than these expenses will seem laughable.

Thank you everyone for the solid advice and points. I will definitely start a separate category in my budget for "irregular expected expenses".