As hard as you try, it’s difficult to plan for the unexpected, especially when it comes to surprises that affect your finances and budget. Sometimes problems come out of nowhere. Your water could heater break down and flood your basement; the dreaded check engine light might come on in your car; your daughter may fall on the playground and break her arm. That’s when having an emergency budget comes in handy. Here’s what you need to know about budgeting for emergencies.
How Much Should Be in Your Emergency Fund?
Your emergency fund should be able to cover the essentials: housing, food, utilities, insurance, transportation, personal expenses, and debt payments. How much you should try to save depends on your situation. If your family has a double-income and steady employment, it’s recommended that you keep three months worth of expenses in your emergency fund. If your family has one income, or your income is variable, financial experts suggest having a six-month emergency fund.
If you’re a single divorced parent, you should combine your child support payments and your net income when determining how much to keep in your emergency fund. It would be best if you tried to save 10% of the combined amount. Child support is payable until the child turns 21 years old, so starting a savings account as soon as possible would be most beneficial.
While an emergency fund provides a safety net if you lose your income, it’ll also ensure you’re prepared for any sudden expenses that pop up.
Planning for Household Emergencies
You wake up one morning and find that you have no hot water. Are you prepared to spend thousands of dollars on a new water heater? If you had an emergency fund, you would be! Many appliances and other parts of your home are designed only to last a certain amount of time, for instance:
- Furnaces are designed to last for approximately 15 to 20 years.
- Traditional tank water heaters last an average of 8 to 12 years. Tankless models have a longer lifespan of 20 years or longer.
- Refrigerators last around 13 years.
- Dishwashers last around nine years.
- Gas ranges can last around 15 years.
- Asphalt roofs will likely need full replacement after 15 to 20 years, on average.
Knowing when you can expect your appliances to fail can help you plan for the expense. It’s also important to keep up with regular maintenance of your HVAC system and repair problems as soon as you notice them. It’s much more cost-effective to repair a small issue on your furnace than wait until it turns into a bigger, costlier problem.
Planning for Medical Emergencies
Medical emergencies can be financially devastating. Even with health insurance, medical expenses can pile up when you factor in things like emergency room visits, ambulance rides, lab fees, hospital stays, prescription costs, medical supplies, and copays.
One way to curb the expense of a medical emergency is to know when a trip to the emergency room is needed. A national study found that around 30% of visits to emergency rooms are potentially unnecessary. It’s much less expensive and effective to go to urgent care or a primary physician for common, mild conditions like:
- Cold symptoms
- Bee stings
- Minor cuts or scrapes
Going to a medical facility right away will benefit your health as well as your wallet. Seeing a doctor when you spot a tick bite, for instance, is important because a tick can transmit Lyme disease just 36 hours after attaching to its host. This medical emergency might be stressful, but knowing you’re prepared with an emergency fund will help you stay healthy and handle any surprise medical costs with ease.
You can’t always plan for the unexpected. However, setting aside some money in an emergency fund will help you prepare for the worst and give you peace of mind that you’ll be able to handle anything life throws at you.