Planning for life’s unexpected costs

Planning for life’s unexpected costs

author: Sarah Neate

By Sarah Neate

There are many things that can crop up in life that we just don’t see coming. Whether it’s your boiler on the blink, your car breaking down or you suffer a burst pipe, the related costs can add up quickly.

Not to mention if something more serious happens, for example, being made redundant or falling ill, so your household income takes a hit.

The main problem with unexpected costs is they truly are unexpected. This means that many of us fail to plan for these situations if they ever crop up. Did you know, replacement boilers can cost between £1,500 and £4,000? That’s a huge amount of money to find if you don’t have an emergency fund in place.

If you’re guilty of being a less-than-perfect financial planner, have no fear. We’ve put together some of the best ways to plan for the worst, so should the unexpected occur, you’ll be ready.

1. Set up an emergency fund

If something unfortunate like losing your job should happen, it’s important to have an emergency fund to tide you over. After all, you’ll still need to pay your mortgage or rent, buy food and pay bills whilst you’re not earning.

And while we all think it would never happen to us, no-one can predict what’s around the corner, so it’s important to plan for this scenario.

The general rule of thumb is to have three months’ worth of outgoings in an easy-access savings account. So if you lose your income, you have three months to find your feet again. For example, if your monthly essential outgoings are £1,500, you’ll need £4,500 set aside in an emergency fund.

2. Budget, budget, budget                                                                

Do you know how much money you spent last month? Do you know what your disposable income is? What about exactly how much you need to spend and save to be financially strong?

If the answer’s no, you’re not alone. Many of us find it difficult to keep on top of our finances. But if you want to be ready for all that life throws at you, then creating a budget to save money is essential.

Having a set amount of cash to use per month will stop you from accidentally overspending. Firstly, work out all your essential outgoings and subtract this from your household income. This’ll give you your disposable income.

From here, you can work out a budget that allows you to live life while saving for the unexpected. The key is to be realistic - there’s no point giving yourself a tiny amount that you’ll never stick to.

3. Think about a credit card

Often, time-sensitive emergencies mean you’re hit with a bill that needs paying immediately. For instance, if a pipe bursts in your home, you’ll need to call a plumber and get it fixed straight away.

In these situations, many of us don’t have the required cash sat in a debit account, so it’s important to have a way to pay. This is where a credit card could come in handy.

A credit card allows you to pay for essentials instantly in one lump sum, which you then pay back to the lender in manageable monthly instalments. It’s important to bear in mind though, that the longer you carry a balance, the more interest you’ll end up paying.

4. Take out insurance                                                   

There are many different types of insurance that can help you in times of need. Here are some policies which will help to cover significant unexpected costs.

  • Home insurance – Typically, home insurance policies will cover the cost of rebuilding your home, should something unexpected happen, like a fire. But you can also choose extra levels of cover that will protect you, like if your boiler breaks down, or there’s a serious leak. It’s important to do your research and pick a policy that suits you, as there are various policies for different types of damage.
  • Travel insurance – So you’re only going away for a week, do you need travel insurance? The answer is yes! Should you fall ill and require medical treatment while abroad, costs can rocket in the blink of an eye. Common injuries Brits suffer abroad include stroke, heart conditions, food poisoning, broken bones and ear infections. With the average cost of medical treatment abroad varying from £889 to £28,938, it’s more than worth covering yourself!
  • Life insurance – Life insurance is particularly important for anyone who relies on someone else’s income. For instance, if you and your partner own a home and split the bills equally, and you couldn’t keep up payments without them, then you should consider life insurance. If the worst happens and they pass away, your insurer will usually pay out a lump sum to help you cover living costs.
  • Income insurance – If you’re unable to work due to illness, income insurance will usually provide your regular income until you return to work, or until the end of a fixed term. This means you can continue to pay your rent/mortgage, bills and any other fixed outgoings while you’re off work.

Avoid frittering away your disposable income on unnecessary items, set up an emergency fund, create a realistic monthly budget and give yourself a lifeline for urgent situations, like a credit card. Taking these simple steps will help you on the path to a strong, stable financial future.

Disclaimer: All information and links are correct at the time of publishing.

author: Sarah Neate

By Sarah Neate

Planning for life’s unexpected costs Planning for life’s unexpected costs