Unexpected expenses can cause a spiral of stress and uncertainty, but what if you could manage them without losing your peace of mind? This episode is all about understanding the concept of an emergency fund, the key to staying afloat in turbulent financial waters, and how our brains often react counterintuitively when an unexpected expense arises.
We'll be exploring the art of budgeting, the secret weapon against unforeseen expenses. Learn about the significance of having a miscellaneous budget category, a buffer that could prove to be your financial savior and why ensuring the right insurance coverage can save you from sleepless nights. I'll shed light on how to create this 'buffer' in your budget and guide you on the right amount to allocate to prevent debt when life throws curveballs.
Let's change the way we view unexpected expenses by cultivating the right mindset. The philosophy of an emergency fund will be our focus, its role in maintaining our financial balance and how it helps reduce stress in tricky situations.
Throughout the episode, I'll be sharing stories from my personal journey, offering you valuable insights into effective financial management. This episode is a must-listen for anyone striving to gain control over their finances and turn unpredictable expenses into manageable events.
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Unexpected expenses can cause a spiral of stress and uncertainty, but what if you could manage them without losing your peace of mind? This episode is all about understanding the concept of an emergency fund, the key to staying afloat in turbulent financial waters, and how our brains often react counterintuitively when an unexpected expense arises.
We'll be exploring the art of budgeting, the secret weapon against unforeseen expenses. Learn about the significance of having a miscellaneous budget category, a buffer that could prove to be your financial savior and why ensuring the right insurance coverage can save you from sleepless nights. I'll shed light on how to create this 'buffer' in your budget and guide you on the right amount to allocate to prevent debt when life throws curveballs.
Let's change the way we view unexpected expenses by cultivating the right mindset. The philosophy of an emergency fund will be our focus, its role in maintaining our financial balance and how it helps reduce stress in tricky situations.
Throughout the episode, I'll be sharing stories from my personal journey, offering you valuable insights into effective financial management. This episode is a must-listen for anyone striving to gain control over their finances and turn unpredictable expenses into manageable events.
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But when you're able to start saving up money for an emergency fund, it allows you the ability to cover and pay for these unexpected expenses without going into debt, and for us, that's the ultimate goal. We don't want to have to take out a loan or put something on a credit card when an unexpected emergency or something happens. Hey, this is Allison, and welcome to the Inspire Budget Podcast, where we talk all things budgeting, debt and saving money. We've all been there. Just when you think you have full control over your budget, life throws you a curveball. An unexpected expense pops up and suddenly it feels like everything is spiraling with your money. Today, we're going to be talking about how to navigate these surprises and unexpected expenses, and we're also going to dive into a little psychological twist why spending money can sometimes give us a false sense of control. Let's dive in.
Speaker 1:I love to bring you podcast episodes that are really action packed. My goal is for you to finish this episode and be like hey, I have some sort of plan, I have some sort of resource or step I can take to maybe tackle a specific area of my life, and that's definitely the case today. I want to give you some tools, some resources, some steps to help you manage unexpected expenses whenever they hit. However, before we dive into that, let's talk about why sometimes we sabotage ourselves after an unexpected expense hits. Here's the truth. I have a tendency I'm just going to own it and my husband will 100% agree and he will back me up on this I have a tendency to kind of want to throw our budget or throw our money goals out the window when an unexpected expense hits.
Speaker 1:I feel like I have this goal set, I have this budget written and as soon as I'm hit with an unexpected expense whether it's the fact that I need to replace two tires on my car or I'm hit with an electricity bill that is a lot higher than I anticipated I have this tendency to just say screw it, I'll start over in a little bit and just almost sabotage the rest of that paycheck period or that budget period. I used to think that this was a big flaw with me, that I was the problem, that this was something no one else has ever dealt with, but I've learned that, because we are human and we have this need for control, we try to seek control whenever things are uncertain. So when we are hit with an unexpected expense, we feel like we've been knocked out of the driver's seat of our car, if you will, and the only way we can get back into the driver's seat is by saying, okay, fine, I'm going to take back control and I can do that by spending money. It's totally this temporary false sense of control, but I know deep down that, even though it's like makes no sense at all, this is exactly what I do, and I'm guessing maybe you deal with this too. When an unexpected expense hits, you feel like you have lost control, you are no longer in charge, and we tend to overspend or impulse spend after that happens, to try to take back control, because the truth is that spending money gives us back that control because we are taking action. The only thing is that's the opposite action we should be taking, which is why it's a false sense of control. So now that we've talked about why sometimes our brains are wired to do the complete opposite of what we should be doing when an unexpected expense hits, now that we've talked about that, let's talk about what you can do when an unexpected expense happens. We're going to talk about what you can do before those expenses hit, and then we're going to talk about what you can do when they hit. The first thing is to establish an emergency fund. Your emergency fund is a dedicated savings account. It does not sit in your checking account, it does not sit in your 401K, it's not invested. It is money that is in a dedicated savings account for this purpose unexpected expenses it should be separate from your regular savings, meaning if you are saving up for Christmas gifts or you're saving up for a new car, it is in a completely separate account than those other savings.
Speaker 1:A few months ago, my husband was mowing the lawn and he mowed over a rock. We used to have all these rocks in our front garden bed from the previous owners and he mowed over a rock that had, I don't know, somehow dislodged from the garden bed. Anyway, he ran over this rock and the rock shot up from underneath the lawn mower, flew high in the air about 15 feet up, and hit this massive window above our front door. If you've been following me on Instagram, I actually shared about this in my stories and in a reel and it was crazy the immediate smack of the rock against the glass and then the glass shattered into about like a million pieces. It just cracked all along the front of the window, and that was the true example of an unexpected expense. Something so small, something so tiny as a rock totally shook us and forced us to have to go into our emergency fund. And I kid you not that window because it was large and it had this custom shape it cost us $1,800. Now were we setting aside money to one day replace that window? Absolutely not. We were never planning on replacing that window, because there was nothing wrong with it until there was, and I was very happy. Isn't that weird? I was happy, I was mad, but I was also happy that we had money set aside in an emergency fund Because, honestly, this wasn't an emergency. We couldn't have this cracked window above our doorway. We needed to get it fixed, and so we were able to use money from our emergency fund to fix that, and that's exactly what your emergency fund is there to do.
Speaker 1:So how much should you have in your emergency fund? I think this is totally a personal preference, but I recommend saving at least three to six months worth of necessary expenses. Now, that can feel like a lot of money at first. When you're first starting out with your emergency fund, you might be thinking that's I can't do that. I can't do that and don't worry, you don't have to start there.
Speaker 1:Here's what I want you to do. I want you to write out all of your necessary expenses that you need to essentially get by to live right, to not go into debt. This would include things like your rent or your mortgage, your utility payments, your internet, your minimum debt payments If you have a car payment. We want to include that Groceries. List down everything that you pay for every month and how much it is. We are not going to include extras in life. Extras would include unnecessary subscriptions, netflix, going out to eat, clothing money all those things. We're going to total up just our total necessary expenses and multiply it by three. That is your three month emergency fund goal. If that seems totally far off like I can't save that anytime soon cut that number in half and start there.
Speaker 1:But when you're able to start saving up money for an emergency fund, it allows you the ability to cover and pay for these unexpected expenses without going into debt, and for us that's the ultimate goal. We don't want to have to take out a loan or put something on a credit card when an unexpected emergency or something happens. Now am I saying that we will never have to do that. No, if my kid gets into a car accident and we're saddled with $70,000 worth of medical debt or something like that happens, yeah, we're going to have to take out debt. But when it comes to a window breaking that's $1,800 or plumbing issues, we want to be able to cover that without going into debt, and that's how we can help deal with these unexpected expenses before they happen.
Speaker 1:The second thing that you can do to help you anticipate these unexpected expenses and plan for them before you even know they're going to happen because we don't have a crystal ball is to add a miscellaneous category to your budget. You can call it a buffer, you can call it a catch-all or just miscellaneous, whatever it is by adding a certain amount of money to your budget every month, let's say $100. This can catch some of those unexpected expenses that pop up. This is something that our family has been doing for years, because we realize that we cannot predict exactly how our month is going to go. We cannot predict where every single dollar is going to go. We can only estimate and just hope that we get as close as possible. That's why we always include a buffer in our budget.
Speaker 1:A couple weeks ago, I started having some knee pain, and so I went to the doctor, and one of the things that the doctor had me do was buy this brace, this special knee brace that I would wear anytime I'm working out or going on long walks. Well, this brace was not cheap. It was $100 on Amazon, and it wasn't something that I thought I would be buying. It's not even a fun impulse purchase. It was a necessary purchase and, thankfully, our buffer could help cover the cost of that knee brace. So, instead of coming home from the doctor and being all in my feelings, frustrated that our budget was blown, I could tell myself hey, look, we have a buffer in our budget. This is exactly the type of thing that is going to cover that cost, and I was able to buy it and not have any frustrations or feel like our month was completely thrown off.
Speaker 1:This is what makes a buffer so pivotal is that it allows you to leave room for the unexpected. We don't know what's going to happen, we don't know when it's going to happen, but we know something unexpected is going to happen. We know that someone's going to be invited to a birthday party or we're going to have to go out to an extra dinner that we didn't know about. Something happens, and whenever these smaller unexpected expenses happen, it can lead us to feeling like we're not great at budgeting or it just isn't going to work for us, and that's not true. We just have to have a certain category in our budget to help catch these unexpected expenses and cover them, and that's exactly what your buffer does. So, if you haven't already, one big takeaway from this episode is to start adding a miscellaneous category or a buffer to your budget every single month. The dollar amount for how much you're going to put in your buffer every single month is going to depend on how much money you have left over and really how much money you have coming in in general. For me personally, our family we usually add anywhere between 100 to $150 each budget. So we're writing two budgets a month based off of our paydays. So every two weeks, we add in about 100 to $150 buffer to help cover any of those unexpected expenses. If we don't have any unexpected expenses, great, we just include that money, we let it roll over to the next month and it's there in case we need it.
Speaker 1:Today's episode is brought to you by my budget to build wealth. Here's the truth. I do not believe actually I refuse to believe that wealth is just for the rich. I believe that wealth can be built on a budget without sacrificing what you love to spend money on. I fully believe that budgeting is the quickest, most effective way for you to reach your money goals. So, whether your goal is to stop living paycheck to paycheck, pay off those student loans that have been hanging over your head, or find room in your budget every single month so that way you can start investing for your future, you're going to need a guide, a plan to get yourself there, which is exactly what I'm sharing in my free training budget to build wealth. In this training, I'm going to be sharing three massive mistakes that people make with their budget and their financial plan, so that way you can avoid them. I'm going to be sharing with you the secret to freeing up more money in your budget each month, so that way you can send extra money to your goals, and I'm going to be sharing with you my tried and true four step framework to budgeting your way to wealth without giving up what you love. Plus, there is a very special free gift for anyone who stays until the end. You can sign up by going to inspiredbudgetcom slash class or just click the link in my show notes. You'll be able to choose a time that works for your schedule and I'll see you there.
Speaker 1:Before we dive into actually how to handle those unexpected expenses when they happen, I want to cover one final thing for what to do before they happen, right to help prevent these unexpected expenses completely throwing you off your game, and that is to make sure you have the appropriate insurance coverage when it comes to massive unexpected expenses. I don't feel like enough people talk about this. We have to have insurance and protection because we don't know what life is going to bring us. Here's an example.
Speaker 1:Our family lives in the Houston area, and Houston is very known for flash flooding. It has to do with our soil type. Our soil does not soak in water, and so what ends up happening is, when we have all of these hurricanes or even just tropical storms, just lots of rainfall in one period of time, there the drains get filled, the soil isn't soaking up the water, and so the streets flood. There has been a lot of flooding just even in our town. Our house has never flooded, but to me that doesn't mean it never will. So one thing that our family does is, every single year, we voluntarily pay for flood insurance, meaning we're not in a flood zone, but areas of Houston aren't in a flood zone have flooded. So we have this healthy state of fear that, hey, our house could very well flood and we want to protect ourselves from that possible unexpected expense. It gives me the peace of mind to know, hey, if this happens, we'll be okay, we'll get reimbursed, everything will work out, because our regular home insurance does not cover flooding. So what are you going to do? What can you do If you haven't in a while?
Speaker 1:It's time to review your insurance policies. So, anywhere from health to car or auto insurance, home insurance, making sure you have renters insurance if you rent and you don't own your home, be sure you are adequately covered. The last thing you want is to be faced with a really, really high, catastrophic unexpected expense because you didn't update your insurance. Our family personally reviews our insurance, usually about once a year in January. There's this time of the year where it's after New Year's Eve, but before my husband and kids go back to school and my husband will sit down and he will review all of our insurance policies. He will make sure, like hey, we have the right amount covered, and he will even shop around for something a little bit less expensive. So that's exactly what we do Once a year. We always do it at the same time. So it's become this routine, it's become this habit that we know we're gonna do every single year, so that we are protecting ourselves from any catastrophic unexpected expenses that may or may not be headed our way.
Speaker 1:Finally, let's talk about what to do when an unexpected expense hits, because having your emergency fund, incorporating a buffer and making sure that you're protected with proper insurance, those are all things you can do beforehand. We make those decisions in advance to help us deal with it. But what happens if you're hit with an unexpected expense and you don't have enough money in savings to cover it? Or it isn't something that insurance can cover, or your buffer isn't going to be enough. What do you do then? Well, what I like to say is we have to pause. The truth is that when we're working towards money goals, when we're trying to pay off debt, when we're trying to invest, when we're trying to save for a vacation or a new car or insert whatever you're saving for here. It can be really hard to pause and deal with the situation at hand because it feels like we're giving up. But that's not true. So let's say that you are hit with an unexpected expense. What we have to do is pause and regroup.
Speaker 1:This has happened to us many times before. Actually and I don't know if I've told this story much at all about two months before my husband and I were supposed to be debt-free, his car's transmission went out. He was driving an older vehicle and the transmission just was completely shot. We had two months. We had been working to pay off debt for four years. We had two months left to go and we had, I think, $4,000 in our savings account, and we were faced with the choice of what are we going to do? Are we going to rebuild his transmission, drain our savings, rebuild the transmission, cross our fingers and hope his car runs for a couple more years? Or are we going to sell the car for scraps and go buy another vehicle and go further into debt? To be able to make that decision, we had to pause everything. We decided to go ahead and rebuild his transmission, which was the best choice, because that car ended up going on to live a long life.
Speaker 1:I think he had it another four years maybe but in that moment it was so hard to pause and deal with it at hand. This meant that we had to stop paying extra money on his student loans. We had to pause going out to eat. We had to just almost stop and deal with the situation. Take whatever money we could out of savings, figure out whatever solution we could and deal with everything at hand. That was hard. It was hard for me because I felt like my motivation, my momentum, took a major hit because we were so close. Honestly, if we didn't have that much money in savings to cover that expense, we would have had to have taken out a loan or put it on our credit card.
Speaker 1:When we are hit with unexpected expenses, before you do anything, before you make some big decision, you have to pause. That doesn't just mean pause to make a decision. It means pause and only make the minimum debt payments that you're working on. Pause your money goals. If you're saving for a vacation, pause the savings because we have to handle the unexpected expense. Then ask yourself next time if something like this happened, what can I do to be prepared for it? A lot of times, it's to increase your emergency fund or have more money in savings. That's exactly what we did. We ended up rebuilding that transmission. We ended up having another unexpected expense come through and to help pay for that unexpected expense, which was a medical cost, medical bill I ended up working summer school to help bring in some more money. Then we paid off our debt. That's when we really increased our savings, because we didn't want to be put in that same situation again.
Speaker 1:I just want you to remember that the key to handling these things, when life throws you a curveball, whenever it feels like you're just getting handed all of these random expenses left and right, it's not just about having money set aside. That's not what it's just about. It's not just about having an emergency fund. It's about making sure you're incorporating a buffer into your budget and adjusting your financial strategies to align with your current situation. Just to recap, we talked about three things that you can do now to handle future unexpected expenses, and those three things are to establish an emergency fund, incorporate a miscellaneous category in your budget or incorporating a buffer in your budget, making sure you have adequate insurance and protection and then, of course, when you are hit with that unexpected expense, pause and handle the situation, and that might mean pausing our goals, pausing our extra contributions to our goals while we deal with the issue at hand.
Speaker 1:Instead of answering a listener question, this week I actually wanted to share a win from my Inspire Budget Inner Circle community. This is my membership, where we have 1,000 women inside working on writing a budget, paying off debt and just stopping the paycheck to paycheck cycle. And they're really working not just on the numbers, right, not just on the math. That's not always the hardest part. It's the behavior behind the math and the behavior when it comes to ourself. And so I want to read you what one member shared.
Speaker 1:She wrote this just happened today and it was a picture of her broken windshield, like when you're driving behind a car or a truck and a rock shoots out and hits your windshield and you end up with this big long crack across your windshield. So she posted this picture and she said I was driving down the road and I'm not sure if a rock hit it or if it was just a random thing, but thanks to budgeting and having an emergency fund, I'm not even stressed. The $300 to replace my windshield will come out of my emergency fund, and then I'll add it to my payday budget until it's paid back. Had this been a year ago, I would have been stressed and angry at the thought of an unexpected expense.
Speaker 1:And I am just so excited for this member because you can see that before she had this emergency fund, before she had this mindset, her day would have been ruined, her week would have been ruined, she would have been frustrated, angry, stressed, and now, whenever something like this happens, something totally unexpected and fully out of her control, she's able to say hey, life happens, it's OK, it's going to be fine, I have a plan and I'm going to be able to make it work. And that's exactly what I want for you two. Will you do me a favor? Will you take this episode, grab the link to it or, however you're listening to this episode, go in the podcast app, hit the share button, grab the link and send it to someone that you think would enjoy it. Maybe it's a friend or a family member, but either way, it would mean the world to me. I'll be back next week with another brand new episode. Talk then, bye.