Even though we know some events are coming, especially ones that happen every year, somehow or other time flies by so fast that many people rarely plan for them financially. Not planning for yearly events and or having some slack in your budget for financial surprises can be a costly mistake.
Here are some suggestions to help you keep you from accumulating too much surprise debt.
According to Money Advice Trust’s National Debtline in 2015, 35% of Britons paid for their holiday spending by borrowing money, with 23% borrowing to buy food. That's a sure-fire way to start the New Year with debt. Rather than do this, open a holiday savings account that you contribute to throughout the year. That way when the holiday season comes, you can buy gifts with cash.
Car repair bills
Unlike holidays, car repairs are hard to predict. The best way to reduce your number of unplanned car repair bills is to keep up with recommended servicing on your vehicles. Even though you have to spend money to ensure that your vehicles are in good condition, in the long run it will actually save you money by lowering the frequency of repairs.
Waiting until the last minute to buy someone a birthday gift often leads to an expensive impulse purchase. Whether you prefer to do it with an electronic calendar or a paper one, keep track of birthdays and set an amount that you can afford to spend on each person. Include those amounts in your budget for those months so that they become fixed expenses instead of surprises.
Weddings come up throughout the year and you can't predict when or how many you'll be attending. It's also an unfortunate fact that some people aren't always considerate when they set up their wedding lists. If the bride and groom have picked items that are too pricey for your budget, don't overspend. Get them a gift certificate to the store or another well-chosen gift - or simply give them cash instead.
Valentine's Day and anniversaries
Many couples spend £100 or more celebrating on Valentine's Day and/or their anniversary. If you budget for it, that's doable; but, if not, then resist the urge to splurge. Instead of going out to a fancy restaurant, have a candlelit dinner at home. Talk to your significant other and if money is an issue, then discuss the fact that you might have to skip giving each other pricey gifts.
Just like cars, keeping up regular maintenance on your home will help save you repair costs. If you do run into an unexpected problem and have to call someone to fix it, make sure you shop around. Get at least three quotes for the job. This will ensure the price you pay is competitive. Botched work can leave you with even bigger bills, so make sure to take up references.
If you expect that you will owe taxes (usually if you are self-employed), keep up with your accounts and payments on account. This way, you won’t get hit with a whopping bill when you file your returns. You’ll also be able to budget better, as you’ll know roughly what payments you’ll need to make.
Rainy day fund
While saving for retirement is important, it's also essential to have a savings account for expenses you can't foresee, like being made redundant. Ideally, you should aim for 6-9 months of living expenses set aside in a savings account. It may take you time to build up your rainy day fund, but you'll be glad you did if you ever need it.
Live below your means
Everyone's idea of living frugally is different, but it is definitely a good idea to cut costs where you can. Try to eat out less, reduce your entertainment expenses and put yourself on a budget. If you spend every cent that you earn, it will be impossible to save any money. Additionally, if you constantly cut yourself too short on cash, you will have to borrow money for surprise expenses, which could lead to future trouble. Other people’s money is always more expensive than your own.
If you're put in a situation where you have no choice but to borrow money, then shop around for the best loan deal possible. Use credit cards only as a last resort if you have no other choice as the APRs are often high. Payday loans should be avoided for similar reasons. Try to remortgage, or consider equity release if your circumstances are right, rather than getting a personal loan. You could even try peer-to-peer lending. Things may be urgent, but don’t panic – considering your options carefully will be helpful in the long run.
Even expenses we know are coming can wind up being surprises if we forget about them. One of the best things you can do is give yourself some wiggle room in your budget so that you don't have to go into debt when you hit an unplanned expense. Plan ahead as much as you can, but realise that you're human, and keep some cash around for things that you forget or can't plan on, and a few treats!