When it comes to personal finances, many entrepreneurs believe that they are in control. They don't realise how financially unprepared they are until a large, unexpected bill arrives. Managing regular bills, covering ongoing expenses, and saving up for your next holiday trip (or that rainy day) is a good habit, especially when it can be difficult to accurately predict your income in the early days of starting a business.
However, you have to look beyond the regular bills and expenses if you want to stay on top of your finances. Although there is no way you can predict an unexpected expense, acknowledging that they can and do arise can help you prepare and plan for them.
To help you get started, here are the top unforeseen expenses you should be aware of and how you can deal with them.
What are unforeseen expenses?
First up, it's important to understand what unforeseen expenses actually are. There are some bills you don't necessarily pay every month, such as quarterly water rates, annual insurance premiums or property taxes, or ongoing property maintenance costs. Even so, they are predictable and do not count as unforeseen.
Unforeseen expenses are those that you cannot predict. There is no way to avoid them or to know how much they'll cost when they land. That said, there are some common unforeseen expenses that many people encounter out of the blue.
- Major vehicle repairs: Your vehicle will need ongoing maintenance to keep it roadworthy. But in addition to this, there can be sudden repairs that are not included in your monthly budget. For example, you may be involved in an accident that causes a lot of damage and which is very expensive to remedy.
- Damage to your residential or commercial property: Just like cars, some major property repairs are required without prior warning. There are natural disasters such as flooding, lightning strikes, landslip or fire that can damage your property. Re-instating the property can be costly as can finding temporary premises if yours are out of action.
- Medical emergencies: Regular health-related costs such as check-ups and dental appointments can easily be budgeted for. But other medical emergencies requiring private surgery in order to avoid waiting or a serious illness that keeps you off work can cost you a lot in terms of lost turnover or additional unforeseen expense.
- Emergency travel: You can save up for a planned vacation. However, there may be emergency travel that you have to make. It could be an unexpected family gathering or emergency. Such unplanned travel can eat a hole in your budget by virtue of its last minute nature.
How to deal with unforeseen expenses
Unforeseen expenses are inevitable. They are bound to happen regardless of how much you plan and budget for them. But you can reduce their impact by preparing for them. Just start crunching the numbers and use the following techniques to manage your unexpected expenses:
Cut unnecessary spending
The first thing you can do when faced with unforeseen expenses is re-evaluate your budget and cut back any unnecessary expenditure. This means you might have to forgo new clothing, entertainment, or restaurant expenses to accommodate the unexpected expense. You might also have to reduce the number of personal services you pay for such as trips to the hairdresser, spa or personal trainer.
Take out a loan
Unforeseen expenses can have the habit of being sizeable. Cutting unnecessary spending may not be enough to cover them. If you need to secure money quickly, you may consider taking out a loan.
There are different financing options that you can consider. Here are a few that people utilise to stretch their cash to their next payday.
- Personal loan: You can take out a personal loan for almost any reason. This can be an excellent option to cover unforeseen expenses since you can usually pay personal loans off in monthly instalments.
- Payday loan: You can also opt for a short-term loan option like a payday loan. This is a convenient option to cover unforeseen expenses quickly since it doesn't require a credit check.
- Line of credit: Using a line of credit is another option to help you manage unforeseen expenses as long as you can get a relatively low rate.
Dip into savings or an emergency fund
If you don't want to get into debt to cover an unexpected expense, you can also dip into your savings account or emergency fund. This means you avoid the stress of keeping up with loan repayments. Just make sure that the money you use isn't set aside for some other essential purpose. If you don't already have a savings or rainy day fund, it might be time to start building a fund for this unforeseen expenses.
Start a side hustle
Another way to cover unforeseen expenses is to find a way to earn some extra money. You can start a side hustle. You might start doing some freelance work or selling items you don't use anymore or offering new products or services. The beauty of finding new income streams is that you won't have to cut too much from your existing budget or get yourself in more debt.
Unforeseen expenses do come along from time to time, and they don't just go away on their own. You have to learn to deal with them. That's why it's essential to prepare your finances before anything comes up. It never hurts to get more serious with budgeting, building up an emergency fund, and securing a finance line as early as possible.
Copyright 2021. Featured post made possible by SallyTrase of Start Grid/Searchtides.