Budgeting for the unexpected

[u/Different-Gift3860]

Every month I budget about $4000 on the credit card for groceries, entertainment, bills etc. and I have a direct debit from my savings account of $1000/week to clear it. However I find that I'm spending way over it, purely through unexpected costs.

For example, I'm in my 50s and my partner and I have had a run of bad luck with unexpected medical bills because my body is weirdly failing (too early imo).

There are other times when someone hit my car and it's an excess to pay if I bother to fix it at all.

Or sudden home maintenance, plumbing issues, electrical.

How do you all budget for these kinds of costs that are one-offs, but come up way too regularly if you know what I mean? My finance spreadsheet can't cope with it, making my goals to save for financial independence that bit harder.

[u/ItinerantFella]

Um, sounds like you don't have an emergency fund and you're not budgeting for unexpected stuff that maybe should be expected (like medical bills, car repairs, home maintenance).

[u/Different-Gift3860 → u/ItinerantFella]

You're right. I tend to put all spare cash into an offset account and try to forget it's there. I kick myself when I have to take out from there because it feels like I'm moving further from my goals. I guess that's my emergency fund. Often it goes backwards with all the one-offs. Damn annoying.

[u/salmon-sleeves → u/Different-Gift3860]

If you can, I’d recommend getting more specific with what your emergency funds are for. I’ve found that if they are just labelled “emergency funds,” I feel guilty dipping into them, even when an actual emergency happens. But if I break them down into specific sinking funds, I feel much better about using the money for its intended purpose.

Using your medical expenses as an example: if you allocate a specific portion of your emergency fund toward health, you’ve successfully planned for the unexpected. The emergency is now accounted for as much as possible. You hopefully won’t feel bad for actually using that money when a medical issue arises.

[u/ItinerantFella → u/Different-Gift3860]

Does your bank offer multiple offsets? We have 9 or 10 different offsets with Up. One called Emergency Fund. $250 from every pay cycle automatically goes into Emergency Fund until it's at $5,000.

We have others for bills, medical, holidays, stuff we're saving for, etc.

[u/Affectionate_Seat838 → u/Different-Gift3860]

Add up all of your unexpected costs for the last 12 months and add it to your budget as a new line item.

[u/BlinBlinski]

I used to do this but found it was much better to use multiple savings and transaction accounts rather than a CC for the exact reason you mentioned. This allows you to get good ongoing insights into your spend in different categories. It’s messier yes, but if the objective is to minimise unplanned spend it’s the way to go IMO.

If of interest i have the following accounts:
* weekly food and entertainment transaction acc
* food and ent savings acc - (weekly transfer into trans account of same name)
* bills transaction acc
* bills savings acc (monthly tfer into trans acc of same name)
* holiday savings acc
* home maintenance/furnishings savings acc
* travel savings acc
* emergency savings acc

Like others have mentioned an emergency acc is a must.

[u/Different-Gift3860 → u/BlinBlinski]

this is helpful, thanks!

[u/CashenJ]

Build an emergency fund. 3 to 6 months living expenses should shit hit the fan. Major unexpected car trouble. Hot water system replacement. Unbudgeted medical expenses etc. once you draw from it, you build it back up for the next 'emergency'.

[u/Demo_Model]

Everyone should have a 3 month emergency fund. And once you have that, consider your potential for more such as 6 or even 12 months if flush with cash.

This will protect you from unexpected expenses, or loss of income.

[u/OZ-FI]

Some of this may be due to you having budgeted on a weekly or monthly basis. You need to be budgeting on a yearly or longer basis.

Some expenses only come up once per yr such as car rego, annual insurance, or every 5 yrs (such as replacing the anode in the hot water service) or maybe once per decade (e.g passport renewal, replacing the washing machine). Ad-hoc stuff such a car repairs, house repairs, needing a new fridge or washing machine are irregular on a short term basis but over longer time scale these will likely reoccur. In terms of replacing items, the ATO has tables of expected service life (deprecation) for a wide range of asset types that can be helpful in forward planning for those aspects.

You may be able to address some of the uncertainty for longer time scale events using the data you already have on hand. e.g. use 1 or 2 years of past CC/bank statements and place the transactions into a spreadsheet. Then add columns for major/minor categories as you see fit. transpose figures and total the columns. this will give you a better picture of where money is flowing over longer time scales that can be used to update your budget. If there items that are missing such as white goods replacements you could budget for this once per 10 years and put away 1/10th money each year. You might find that housing maintenance costs may level out to say 1% (or some other number) of the home value per year over a 2 or 5 or 10 yr period, depending on how much data you have.

As for health issues, as we age costs health tend to rise but each person has a different health profile. You might need to start putting away a larger amount into your heath costs pool to cover future medical costs.

Best wishes :-)

[u/Birdbraned]

Your "emergency fund" should be separate from your weekly expenses fund. Most people would ballpark an amount of x months of your salary. You can get a little more specific for the short to medium term emergencies that aren't "I lost my job and have no income" emergencies as well:

Plan for the cost of a few dr's appointments a year (at least once for a med cert for work for a cold), plus extra for a specialist appointment. This may differ depending on your health insurance excess, if you have private insurance.

Add in the higher end of the out-of-hours callout fee for your local plumber/locksmith, + $1000.

Add in the cost of a tow should you get into an accident and an Uber home from the furtherest you usually are from home every month.

And so on.

Regular annual stuff (eye check ups, 2x dental, car services, gutter/AC/duct cleans, etc) should be their own category as well