Everyone likes to think that they are prepared for worst case scenarios. The fact of the matter is, however, that many people simply haven’t put time or effort into preparing for bad things to happen with regard to their personal finances. This is especially true for younger people who may just be getting started in life. It is easy to sit down, figure out your income and then create a budget to follow. And that is an admirable, necessary task. However, there are some expenses that come out of nowhere. And if you do not have an emergency savings account factored into your financial plan, you may find yourself scrambling for help when these situations rear their ugly heads.
Here are some all-too-common scenarios that may call for a dip into your emergency savings fund:
None of us are immortal or impervious to illness or injury. If a medical situation occurs that calls for more than an aspirin or Band-Aid, say a trip to the emergency room or referral to a specialist, you may have to pay your bill out of pocket. Even if you have medical insurance, you may find that the co-pays for these types of situations winds up costing a pretty penny. Be prepared – medical emergencies can happen at any moment, so be prepared for an unexpected bill to follow suit when they do.
On a related note to medical emergencies are dental emergencies. You can easily crack a tooth, get an infected tooth or get an unwelcome visit from a painful wisdom tooth. All of these situations will require going to your dentist or a local orthodontist. And those professionals usually expect to be paid in full for the type of work that they do. More than a few people have had toothaches, gone in to get their teeth inspected and walked out knowing that they will have to fork over $500 or more to get relief. Dental insurance usually only covers a very small amount of your bill, so be prepared with a little extra cash to keep your teeth healthy and pain-free.
If you are starting your own company or doing freelance work, you will have to pay your taxes each year. You probably won’t have the luxury of a payroll professional to do this for you, so it is important to budget for your tax payment accordingly. This can be difficult as you get your business off the ground, but it is better than the alternative – getting in trouble with the IRS!
Cars are great for getting back and forth to work. And most Americans rely on their cars to do just that. So what happens when your transmission goes bad or you need to get a new alternator in? You can’t simply not go into work until your car is fixed, can you? Probably not. Car repairs can range from just a few bucks to several thousand dollars, depending upon what the issue is. Many repairs fall in the $500 to $800 range. And if you don’t have at least that much on hand, you need to be prepared to cut some other expenses to free that cash up ASAP.
In a pinch, some people use credit cards or borrow money from family members when these types of financial situations occur. However, it is better to have a bit of money saved up in an emergency account to get relief when you have to pay an unexpected bill. Start an entry in your budget to pay a certain amount of money into your savings, just as if you were auto-paying a bill every month. That way when bad things happen, you’ll have some money socked away to help ease the pain of the common types of emergency expenses that we all deal with from time to time.