How to Plan for Emergency Expenses

As the writer and cartoonist Allen Saunders once said, “Life is what happens to us while we are making other plans.”

Personal finance is a perfect example. You can sit down and make a budget that covers all your regular expenses – housing, food, transportation – right down to the last penny. But real life has a way of getting in the way. Your water heater bursts, or a taxi sideswipes your car, or your baby suddenly falls sick, and all of a sudden your budget is out the window.

There’s no way to predict when disasters like these will strike – but there are ways to prepare for them. For example, you can start an emergency savings account to cover emergency expenses. You can also carry insurance to protect you from many problems that could bankrupt you otherwise, such as medical emergencies or auto accidents. With a little planning, you can be ready not just for a rainy day, but for a perfect storm of emergency expenses.

What Is an Emergency Expense?

First of all, it’s important to understand what an emergency expense is – and what it’s not. There are some bills you don’t have to pay every month, but these still don’t count as unexpected. Examples include:

Quarterly water bills

An auto insurance premium that comes due every six months

A yearly medical examination

Expenses like these are predictable. You know exactly when they’re going to come due, and you know at least approximately how much they’re going to cost. This makes it easy to plan ahead for them in your regular household budget. You just divide that quarterly water bills by three, the insurance premium by six, or the doctor’s bill by 12, and set aside that amount each month to cover the cost.

Regular car and home maintenance expenses aren’t exactly unexpected, either. These are costs that you know are bound to crop up sooner or later. Maybe you don’t know exactly how much you’re going to have to spend on your car or your home in a given year, but you can come up with a pretty good estimate.

For instance, for home maintenance, many experts suggest going by the “1% rule”: On average, you should expect to spend 1% of your home’s total sale price on maintenance each year. That means if your home cost N3,000,000, you should expect to pay an average of N30,000 a year to maintain it. Thus, if you set aside N2,500 each month in your budget for home repairs, over the long term, it should be enough to cover the cost. Similarly, for the average car, you can set aside about N4,000 a month to meet your auto repair costs over the course of the year.

A truly emergency expense is something that you can’t predict, such as a natural disaster or a medical emergency. These are the things that could happen to you at any time, but you can never be sure if they will – or how much they’ll cost you if they do. That means you can’t simply fit these expenses into your regular budget; it takes a different kind of planning to prepare for them.

Types of Emergency Expenses

How you deal with an emergency expense depends on what kind of expense it is. For some, you can buy insurance to protect you from the cost. If insurance doesn’t cover everything, you can try to cut the cost by shopping around – or by using your DIY skills instead of hiring a professional. Then, when you’ve exhausted these options, you can rely on your emergency fund to cover the rest of the bill

1. Medical Emergencies

Some healthcare costs – checkups, medicines, minor illnesses, and so on – are normal expenses that you can budget for. But if you’re hit by a bus or your appendix bursts, that’s a whole different situation. In a situation like this, you have to deal with the pain of your condition, the stress of knowing that your life is in danger, and the hassle of being rushed to the hospital for surgery, all at the same time. The last thing you need is to top all that off with a huge bill that you can’t afford to pay.

What It Can Cost:

The high cost of health care in this country means any kind of medical emergency is likely to come with a big bill attached. If you don’t have health insurance, a visit to the emergency room can cost anywhere from N150,000.00–N500,000.00 and that’s just for the ER visit itself. Tests, lab fees, and specific services, such as sutures, can add thousands of naira more. If you end up being admitted to the hospital for surgery or critical care, you could face bills of N200,000.00 or  more.

And those are only the costs for a one-time medical emergency. Major illnesses, such as cancer, can require months of treatment at very high costs.

Ways to Avoid This Expense:

The simplest way to avoid high medical bills is to not get sick. You might think you don’t have much control over that, but actually, there’s a lot you can do to keep yourself healthy. Simple lifestyle choices like not smoking, eat healthy meals, maintain hygienic environment, and exercising can dramatically cut your risk of all kinds of major illnesses, including cancer, heart disease, and diabetes. You can also fight off germs by washing your hands regularly and getting regular vaccinations.

Even when you can’t avoid health problems completely, catching them early makes them a lot easier to treat. Seeing your doctor once a year for a checkup is a good way to discover minor health problems before they turn into major ones. Yes, it’s a hassle to take an hour or more out of your day to sit in a doctor’s office, but it’s a lot less of a hassle than being rushed to the emergency room for a problem you didn’t catch early – and a lot less expensive too.

Ways to Deal With This Expense:

Of course, even if you’re the healthiest person in the world, that doesn’t prevent you from becoming injured. This is exactly why everyone needs health insurance. It protects you against huge health bills, turning an unpredictable expense into an ongoing one that you can budget for. National Health Insurance Scheme (NHIS) have made life easy for Nigeria as low as N2,000.00 monthly contribution, you still get the best health services.

2. Major Auto Repairs

If you own a car, you expect to spend a certain amount of money each year to keep it running. You may not know exactly what repairs your car will need in a given year, but you can estimate when it’s likely to need new tires or a timing belt and budget for the cost.

What you can’t predict or plan for is an accident that causes a whole lot of damage to your car all at once. If you don’t have insurance to cover it that would be a pretty big bill to pay.

What It Can Cost:

Whether they result from an accident or from everyday wear and tear, unexpected car repairs can cost hundreds or even thousands of naira at once. Here’s how

Ways to Avoid This Expense:

In many cases, you can delay the need for major repairs by simply driving less. The less you drive your car, the less wear and tear you put on it. Consider taking public transport or staff bus to work doing errands on foot or combining several small errands into one trip to cut your total mileage. As a bonus, this will also help you save money on fuel.

You can also avoid many major car problems by following your car’s maintenance schedule rigorously. Putting off maintenance might seem like a good way to save money, but it just sets you up for bigger and more costly problems down the road. A better way to save on routine maintenance is to do simple repairs yourself.

It’s still worth taking your car to a mechanic at least once a year to have it completely checked out. Just like an annual physical, this yearly checkup is a chance to catch small problems and fix them before they turn into big problems.

Of course, none of this will prevent damage from car accidents. The best way to do that is to be a safe driver. Stick to the speed limit, keep your eyes on the road, avoid distractions, such as cell phones, and of course, never get behind the wheel after you’ve been drinking. Another good rule is to stay out of heavy traffic if you can, since you’re more likely to get in an accident when there are lots of other cars to hit.

Ways to Deal with This Expense:

Even the most careful drivers get into accidents sometimes. That’s why there’s collision coverage, a type of auto insurance that covers accidental damage to your car.

However, this type of coverage isn’t always worth the cost. It’s most likely to be a good value for newer cars or cars that are very expensive to repair. Experts say if the cost of collision coverage is more than 10% of the maximum payout – that is, your car’s total value minus your deductible – then it’s better to drop it.

Collision insurance doesn’t cover mechanical failures, but there are other types of coverage that do. For instance, if your car is less than three years old, it probably has a warranty that covers repair costs if anything breaks.

For older cars, you can buy mechanical breakdown insurance.

It could be a good value if the price isn’t too high, but for many people, it’s cheaper to take the money they’d pay for premiums and set it aside in an emergency fund. That way, if the car needs a repair, the money will be there, with no deductibles and no strings.

A final way to save on car repairs is to find a good mechanic you can trust. That way, you won’t have to pay for repairs that you don’t really need because the mechanic can’t figure out what’s wrong.

3. Major Home Repairs

Like a car, a house is pretty much guaranteed to cost you a certain amount of money every year. The 1% rule – setting aside 1% of your home’s purchase price each year for repairs – is a good way to estimate how much that cost will be, but it has its limitations. Some years, your house doesn’t need any major repairs at all; other years, everything seems to break at once.

Ways to Avoid This Expense:

Just like car problems, small problems in your home can turn into much bigger problems if you don’t deal with them promptly. That means the best way to save money on home maintenance is to stay on top of it and fix every problem when you first detect it. It’s much better to fix a small leak right away than to spend thousands replacing mold-damaged walls down the line.

Don’t limit your maintenance work to the house itself, either. Taking good care of the yard can often help you avoid damage to the house. For instance, you should trim tree branches that might fall and hit the house in a high wind. Also, clear away plants that are too close to the house, where their roots could damage the foundation or the plumbing, and direct water from your downspouts so it doesn’t flow toward the house.

Often, you can save on home maintenance jobs like these by doing them yourself. However, don’t take on any repair that’s more than you can handle. Consider cost, time, and safety before deciding whether to do a DIY repair or hire a contractor If you start out sticking to small repair jobs, over time you’ll build up your DIY skills until you can handle the bigger ones.

One problem good maintenance can’t prevent is damage from a storm or other natural disaster. However, you can learn about the kind of disasters that are likely in your area and be prepared for them.

Ways to Deal with This Expense:

Another important way to be prepared for disasters is to have good homeowners insurance. A standard homeowners policy covers damage from wind, fire, hail, and lightning. However, most policies don’t cover flooding or earthquakes

You can also draw on your emergency fund for ordinary home repairs. However, that’s no reason to pay more for a repair than you have to. Before hiring anyone to complete a major repair, check a site like Home Advisor to get an idea of what you should expect to pay. You can use this info to check the quotes you get from contractors and see if they’re reasonable.

Experts recommend getting quotes from at least three contractors for any given job. However, don’t simply choose the one with the lowest bid. Check references and licenses to find a good contractor who will do your repairs right. It doesn’t save you anything to have a job done on the cheap if it has to be redone a year later.

4. Unplanned Travel

Usually, when you’re planning a vacation, you can choose the date and destination to fit your budget. However, sometimes you have to make travel plans unexpectedly. Whether it’s a joyful event like your cousin’s wedding or a sad one like your great-aunt’s funeral, an unexpected trip can eat a hole in your budget.

What It Can Cost:

The cost of a last-minute trip depends on where you’re going and how you get there. If you’re traveling from Maiduguri to a wedding in Lagos, you pretty much have to go by air, unless you want to take all week to get there. A round-trip ticket between the two coasts costs around N80,000. Tack on an extra N20,000.00 or so for two nights at a hotel, N6,000.00  a day for a rental car, and maybe N5,000.00 for meals, and you’re looking at around N111,000.00 for one weekend.

If you’re making a shorter trip – say, from Akure – Lagos you have more options. If you choose to fly, you’ll only pay about N35,000.00 round-trip for this shorter hop. However, you can also drive, paying about N8,000.00 for fuel and wear and tear on your car. Add in the cost of a hotel room, rental car, and meals, and you could pay anywhere from N66,000.00 for the trip.

Ways to Deal With This Expense:

There’s really no way to avoid this kind of last-minute travel, unless you’re prepared to cut yourself off from your friends and family. However, there are ways to manage the cost. For example:

Keep Fares Low. Don’t fly unless you have to. For short-to-medium-length trips, it’s generally cheaper to drive – even if you have to rent a car – or take a train or bus. If you must fly, shop around for cheaper airfare .

Look for Hotel Alternatives. Consider less expensive alternatives to hotels, as well. If you can’t stay with friends, look at hostels and home rental sites, such as Airnb.

Save on Meals. To save on food while traveling, get creative. Try packing a bag lunch to eat on the road instead of relying on pricey, mediocre food from the airport or a roadside stop. If there’s a kitchen in your lodgings, take advantage of it to prepare your own breakfast instead of eating out. Even if all you have is a mini-fridge in the hotel room, that’s enough to store a pint of milk so you can eat a bowl of cereal in your room.

Start a Travel Fund. You never know when an unexpected trip is going to pop up – but you can pretty much count on it to happen every year or so. To deal with the cost, set aside a little money each month in a special slush fund that’s earmarked for travel costs. Then, the next time you get a wedding invitation, you’ll have the money for the trip ready.

5. Unexpected Gift Expenses

As if the travel costs weren’t enough, a family wedding also requires you to shell out money for a wedding gift. Gifts are also expected for a wide variety of other occasions, from baby’s christening to burial ceremony, birthdays and retirement parties. At some workplaces, it’s common practice to take up a collection for a group gift pretty much every time a coworker has a big life event. Even if you only give N500.00 or N1,000.00 each time, it starts to add up after a while.

Ways to Avoid This Expense:

First of all, keep in mind that you’re never required to give a gift just because someone asks you for one. For example, Miss Manners states very clearly that an invitation to a wedding is not an “invoice” for a gift. If you actually go to the wedding, you’re expected to send a gift, but if you don’t, it’s perfectly fine to send your best wishes to the couple and leave it at that. The same goes for baby showers and other parties.

However, when you’re asked to contribute to a group gift at your office, it’s hard to say no without awkwardness. If you don’t want to create tension between yourself and your coworkers, consider chipping in a few naira to show that you want to be included in the occasion. If the organizers are doing it right, all donations should be anonymous anyway, so they shouldn’t know how much money each person put into the pool.

If the requests for office gifts are coming so often that it’s straining your budget even at $5 a pop, try proposing a new tradition to your coworkers. Etiquette expert Jorie Scholnik, in an article at Money Under 30, suggests starting “a monthly potluck that covers all occasions” instead of a separate party and gift for each one. That way, all you have to contribute is a homemade food item.

Ways to Deal With This Expense:

If you actually plan to attend a wedding, shower, or other event, then yes, you have to give a gift. However, it doesn’t have to be an expensive one.

Final Word

The expenses listed here aren’t the only kinds of emergency expenses you can face. For instance, a death in the family could leave you with funeral expenses to pay, or a home burglary could mean replacing a lot of lost valuables. One of the most devastating expenses to deal with is a lawsuit, which could conceivably strip you of all your assets.

Fortunately, these are risks you can also insure yourself against. Life insurance covers the cost of funeral expenses, and homeowners or renters insurance protects your personal property. As for lawsuits, you can carry an umbrella insurance policy to protect all your assets, above and beyond the coverage provided by your home and auto insurance policies.

However, not everyone needs these types of insurance. For instance, if you have no dependents, you need little or no life insurance. Similarly, you don’t need umbrella insurance if you have no assets to protect.

The bottom line is that your insurance should be tailored to your needs. Look at your personal situation and decide what kind of coverage you need and what you can afford to skip. Then you’ll truly be prepared for any emergency expense life throws at you.

Get an emergency expense proof this year by having an emergency savings account or get necessary insurance as the case may be.

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