5 Smart Ways to Handle Unexpected Expenses

Financial difficulties can happen to anyone, often due to unforeseen circumstances: job loss, illness, economic crisis, etc. The coronavirus pandemic has become a stark reminder that you need to be prepared for any unforeseen situation: 46% of low-income adults have faced problems paying bills, 32% have faced problems with rent or mortgages, and 25% of families have lost their jobs. This once again proves that it is important to prepare not only psychologically, but also financially.

However, as practice shows, in emergencies, only 41% of Americans have savings to cover unexpected expenses, 43% are forced to borrow money, and 27% are left without any financial safety net. However, instead of panicking, you can use five methods that will help you solve financial problems and restore stability. We will tell you about them in the article.

What is an Unexpected Expense?

Unforeseen expenses arise suddenly and are not included in your usual budget. Unlike planned payments such as rent, utility bills, or groceries, they can be small, such as an urgent key replacement, or large, such as car repairs after an accident or medical costs.

Here are some common reasons why you may need emergency financial assistance:

• breakdown of household appliances;
• veterinary bills;
• rent or covering unexpected utility bills;
• purchasing essential goods;
• an unplanned trip to visit relatives in another city.

Dealing with an Unexpected Cost

Preparing for unexpected expenses is important for financial stability and peace of mind. By taking care of your finances in advance and implementing simple strategies, you can be more confident in handling unexpected bills:

Create a Financial Safety Net

A financial safety net is not a luxury, but a necessity in the modern world. It helps you survive difficult times without having to resort to loans. Most financial experts recommend having savings equal to 3-6 months of your expenses. For example, if your monthly mandatory expenses are $3,000, you must save $9,000 to $18,000. However, even a smaller amount, such as $1,000, can become your lifeline in an unpredictable situation.

Even if you can save small amounts, the regularity of savings is paramount. It is important to understand that building a financial safety net is a marathon, not a sprint, so you should not expect quick results. And for this process to be successful, it is worth adhering to the basic principles:

1. Systematically save a fixed amount or a percentage of your income. Even $50-$100 monthly, transferred to a savings account, will grow significantly over time.
2. Keep funds in a separate account. Using an easy-to-access savings account, such as a high-yield (HYSA) with an interest rate of 4-5% per annum.
3. Account for inflation when planning your savings amount (usually 2-3% per year). Consider tools like TIPS (Treasury Inflation-Protected Securities) to protect your savings.
4. Review and adjust your savings goals regularly based on income, expenses, or marital status changes.
5. Automate your savings through your bank.

If your insurance plan qualifies, consider opening an HSA (Health Savings Account) to cover unexpected expenses like medical bills. This will save you money on taxes and provide you with a reserve for medical needs.

Building a financial safety net is not only about saving money; it’s also about developing good financial habits. Learning to save money regularly is important, no matter the amount. Over time, this habit will become a natural part of your financial life.

Consider a Personal Loan

Many people start by contacting a bank when getting a loan. Trusted institutions like Wells Fargo or U.S. Bank can offer you a variety of loan options. But there’s a nuance here —the process of getting a loan from a bank can take days and sometimes weeks. Banks do a thorough vetting process; time can run out while they approve everything. If you need money quickly, this is not always a convenient option.

That’s where online services like asapfinance.org come to the rescue. The approval process here takes 30-60 minutes, and the money arrives in your account within 24 hours. And one more important thing is that the loans here are provided without checking your credit history, which can be useful if you don’t have the best credit rating.

Before you take out a loan for unexpected expenses, think about how much you can fit the monthly payments into your current budget. If you are borrowing between $1,000 and $5,000, estimating in advance how long it will take you to repay the debt is important. These loans usually last for several months, and you should be clear that you will be able to pay the money back on time to avoid additional interest costs.

But apart from convenience, it is important to remember another thing: you need to be responsible. Before you take out a loan, make sure you can pay it back on time. Evaluate your finances and your ability to repay some of your income. A simple advice is to take only the amount you are sure you can pay back in time. Better yet, consult a financial professional. This will help you to take a balanced approach to choosing credit offers and avoid unnecessary debts.

Find an Additional Source of Income

Not always, savings can fully provide help with unexpected expenses. Without additional sources of income, it will be difficult to cope with the financial crisis. Today, there are many opportunities for additional income, even if you have a permanent job. The main thing is to properly assess your opportunities and effectively distribute your time between your main job and additional employment.

Before looking for additional sources of income, analyze your skills and experience. List everything you can do well: perhaps you have knowledge or skills that can be monetized. In today’s world, even a hobby can be a source of extra income.

To start earning more money, you can:

• Provide consulting services in your professional field if you have enough knowledge and qualifications.
• Create and sell online courses or training materials through platforms like udemy.com.
• Sell unwanted items on eBay or Facebook Marketplace.
• Rent out property or equipment through Airbnb or Turo.
• Work part-time in the service industry, such as driving for Uber or Lyft or delivering food through DoorDash and GrubHub.
• Provide tutoring services through Wyzant or Chegg Tutors platforms.
• Fulfill orders on freelance platforms such as Upwork or Fiverr.

Remember that in the beginning, additional income may be small, but over time, having accumulated experience and a base of clients, you can increase your income significantly. Additional funds will help you pay off your debts faster and build a financial safety cushion.

Reduce Unnecessary Expenses

Often, we don’t even notice the money “leaking out” for things we can do without. Therefore, optimizing optional expenses is an easy way to free up money for more important purposes, such as paying off loans and creating a safety cushion or investments. Here’s what you can do:

1. Analyze your spending habits. Today’s average American spends about $2,500 a year on food outside the home, which may seem small at first glance. But for a family of 3-4 people, that’s a significant expense. To categorize your spending, keep track of your bank statements, and use Mint or YNAB, you’ll be surprised how much you can save by eliminating unnecessary categories.
2. Limit trips to restaurants and coffee shops. Buying a $5 coffee at Starbucks every day seems harmless, but that’s $150 a month or $1,800 a year. Making coffee at home costs an average of $0.50 per cup, which saves up to $1,500 a year. Dining out at restaurants is also expensive. Cooking at home is, on average, 40-50% cheaper. Try cooking ahead of time and taking your meals to work — it’s about saving money and controlling your diet.
3. Cancel unused subscriptions. Review your active plans for streaming services, apps, or magazines. You might be spending on platforms like Netflix, Hulu, Disney+, or Spotify without fully utilizing them. Eliminating unnecessary ones could save you $50-$100 monthly.
4. Set a budget. Spend 50% on mandatory expenses (housing, utilities, transportation, insurance), 30% on wants (going to restaurants, entertainment, travel), and 20% on savings and debt repayment. If spending on “wants” exceeds 30%, reconsider your priorities. For example, choose hiking or museums that offer free admission days instead of expensive movie tickets (about $15 per ticket).
5. Save on entertainment. Many libraries in the U.S. offer free or low-cost programs such as courses, movies, and access to online resources. Use the Eventbrite or Meetup apps to find free events in your city.
6. Look for discounts and use coupons. Apps like Rakuten, Honey, or Ibotta can help you find promotions and earn cashback on your purchases. You should also buy groceries and necessities at Costco, Walmart, or Aldi. This can save you up to 30% of your budget.

Take Insurance

Insurance is a tool that can protect your finances from unexpected expenses. In the US, medical services can cost a fortune: the cost of hospitalization in America ranges from $2,600 per day in the hospital to $10,000 and up, depending on the patient’s condition. And if you need surgery, the bill can be from $20,000 to $50,000 or even more. When choosing insurance, you need to choose a plan that will cover outpatient care, hospitalization, and medications and also take into account such details as the deductible (that is, the amount you need to pay out of pocket before the insurance company starts paying for expenses) and the limit of personal expenses. For people with limited income in the US, there are also programs like Medicare and Medicaid.

Auto insurance is no less important. The average cost of auto insurance in the country is about $1,070 per year (the amount may vary depending on the type of car, where you live, and your driving experience). Minimum coverage covers damage to other road users. For more comprehensive coverage, consider additional options such as coverage for damage to your car or protection against natural disasters and theft.

If you own a home or rent an apartment, consider home insurance. Homeowners insurance costs about $1,500 per year, while renters insurance is about $15-$20 per month. These are fairly affordable amounts to protect your property from things like fire, flood, theft, or damage from natural disasters. If you live in an area prone to floods or earthquakes, make sure your insurance includes these risks, as standard home insurance may not cover such events.

Remember disability insurance, which costs 1-3% of your annual income and can replace up to 60% of your salary if you are unable to work.

If you want extra protection, consider taking out umbrella insurance. This policy gives you additional coverage above and beyond the limits of standard policies, which can be useful in the event of lawsuits or major accidents. Umbrella policies typically cost between $150 and $300 per year for $1 million in coverage.

Finally, it’s important to review your insurance regularly. Your life circumstances may change — you may buy a home, change jobs, or have a baby — and that may impact what types of insurance you need.

Conclusion 

Getting out of the financial crisis is not easy, but it is quite realistic. The main thing is a clear plan and consistent actions. Find ways to increase your income, review your expenses, and manage your debts wisely. You should also work on your financial habits: learn to save, avoid unnecessary spending, and plan your budget properly. If you feel you can’t cope, consult a specialist. A financial advisor will help you build a strategy and avoid common mistakes on the way to stability.