Do You Budget for Unexpected Expenses?
by Mr Credit CardWhen I first met my accountant a couple of years ago, she told me to make sure I budgeted a “contigency expense” in my budget for things like home maintenance. I did not follow her advice. For a year or so, everything was fine as we did not have any unexpected expenses.
But just very recently, we noticed a leak in our basement whenever it rained. We have a finished basement, and hence, we had to rip off the carpet. For a few weeks, we pretended that it was not serious and hoped that it would go away. But the leaks kept getting worse and worse. We had to keep putting towels near the wall where it leaked to prevent the water from moving to the carpets.
To try to solve this problem with the least cost, we consulted lots of friends. We first had a landscaper come and take a look. He looked at it with the eyes of a landscaper. He suggested that perhaps we may want to create a “gradient” in our garden so that the water “flows away from the house”. We had a contracter friend suggest we check our drainage system to make sure there were no leaves clogging up the system.
Finally, we decided to consult basement leak experts. It turns out that we had a leak in our wall and that our basement had no sump pump! To prevent leaks in the future, we had to have a drainage system installed in our basement. Total Cost worked out to be about $5250! Well, that was certainly not budgeted in our budgets. But that was not all as we had to get a carpenter to remove the wooden panels on the walls before work could be done. That worked out to another $1000!.
We decided to get this done with because we did not want any more leaks to the basement. This certainly was not anticipated and it just goes to show that you need to budget for such contigency expenses. But I realized that I was lucky. Another church friend of mine had to fix his roof because the tiles were falling on the pavement and also because the roof specialist said that his roof was not constructed properly according to specs! Let’s just say that cost was multiples of the cost to fix my basement.
Here is what I think we have to budget for in our monthly budget.
1. House maintenance cost – like my basement leak!
2. Unexpected wedding invitations
3. Traffic Tickets!
4. Car breakdown and maintenance cost
It would be interesting to know what other unexpected expenses you have faced.
March 12th, 2007 at 14:49
[...] A budget is your plan for what you expect to spend. But do you budget for unexpected expenses? That’s the question asked at Ask Mr. Credit Card. You may as well as yourself the same question. [...]
March 14th, 2007 at 18:37
I started out accruing for property tax on the house and car, car tags and insurance – all those nasty once or twice a year bills. As I’ve gotten more sophisticated, I’ve added categories for vehicle maintain/replace, vet bills and household repairs/projects.
I use a system similar to the ‘freedom fund’ that is in Mary Hunt’s books – a savings account linked to my household checking account in my case that I can move funds between online.
March 15th, 2007 at 19:42
[...] This week’s edition is at The Sun’s Financial Diary. One of the articles that I liked was Do You Budget for Unexpected Expenses? As I have said before, we need to estimate for repairs and maintenance for the upcoming year or we will always be stressed out playing catch up trying to find the money when things break down. [...]
March 16th, 2007 at 17:24
my contingency fund is my income disruption fund currently at 12months. combination of cd ladders and high yield savings.
my emergency fund lines currenlty, which is separate from contingency fund, include:
insurance deductibles; major auto repair; major medical/dental; major house repair; emergency travel (to get out of a country); pet fund
i’m looking to fund these emergency lines:
emergency travel (my folks are getting old, chances are a funeral or health incident force me to go home); child care (planning on having kids in the near future); lawyer retainer
emergency fund lines are in combination of cd ladders and high yield savings. What I plan for is to be able to immediately fund one month income disruption along with two major repairs simulataneously. that is why i have a portion of contingency and emergency funds laddered in cd’s. i may pursue t-bills, but since i don’t pay state or federal taxes at the moment, cd’s work fine.
August 28th, 2007 at 13:51
[...] A budget is your plan for what you expect to spend. But do you budget for unexpected expenses? That’s the question asked at Ask Mr. Credit Card. You may as well as yourself the same question. [...]
August 3rd, 2008 at 17:15
[...] budget is your plan for what you expect to spend. But do you budget for unexpected expenses? That’s the question asked at Ask Mr. Credit Card. You may as well as yourself the same [...]