Facing big costs that only happen occasionally is the downfall for many budgets. Once you have a system in place for paying your bills each month, it is time to get serious about handling these other expenses. Whether it is something you expect, such as a semi-annual insurance bill, or something unexpected, like roof repairs, these are the types of costs that break a budget.
Create Breathing Room
The first step towards building a fund for unexpected expenses is to generate some extra income. Whether this is through taking a side job or working on your existing budget, put this money in a separate account so that it doesn’t co-mingle with your regular spending. Finding a high-yield savings account can help you earn a little more on this money. Online options often provide the highest returns but don’t overlook local credit unions. They are often surprisingly competitive.
Freeing up money in your budget can be as simple as making some changes to your existing accounts. Many cable, phone, and internet providers have a remarkable number of plans to choose from. Call and let them know you are considering canceling because you need to cut expenses, and they will often find you a more affordable option. Refinancing your student loans can free up money each month. Using a private lender to refinance federal or private loans is quick, simple, and you can save money with ease online. Use the money you save each month to build your savings.
Check Out Your Bank Statement
Review your bank statements for the past several years. The availability of online banking makes it simple to pull up past statements and search for particular expenses. Do a little math to determine the average amount you spend each year on unexpected or infrequent expenses. Use this as a baseline for building an account. Once you are comfortable with the amount you have set aside for emergencies, leave it alone. Hopefully, you will continue to save, but open a new account or consider another type of savings vehicle, such as certificates of deposit. This money won’t be available immediately, so don’t put money in there you may need to get your hands on it quickly, but it will earn a higher interest rate.
Work on Your Credit Score
Ideally, you will always have money available to cover unexpected expenses. If problems crop up that you aren’t able or willing to handle on a cash basis, having stellar credit comes in handy. A high credit score makes you an attractive risk for lenders, and you will qualify for low or zero-interest financing. Whether you are looking to finance healthcare, a major appliance, or car repairs, being able to spread that expense out over six or nine months at no interest saves you money and allows you to keep your savings intact. Keep your credit score in top shape by paying bills on time and only using a small portion of your available credit. Running your credit cards up close to their limit not only makes lenders nervous but can put you in a tight spot if you are unemployed or have your hours reduced.