Most Americans are in poor financial shape. In fact, 44% of American adults say that they could not pay for an unexpected $400 expense, or would have to resort to selling something or borrowing money to cover it. That’s a shocking figure. If you’re one of those people, or even if you aren’t, it’s high time to get your savings in order so that an unexpected expense doesn’t put you into debt. Here are three of the primary unexpected expenses people face, and how to save for them.
If you own or lease a car, many repairs will be covered under your warranty, while more serious incidents like accidents will be covered by your insurance. But you may still have to pay a deductible of $250, $500, or maybe even $1,000. Put aside at least that much money just in case you wreck.
If your car is out of warranty, any repairs not covered by insurance will fall squarely on your shoulders. Put aside at least $500 to cover a single repair, and more if you know that you’ll have to get new tires, new brakes, or make some other large repair within the coming year.
Houses don’t generally require much money in terms of short-term upkeep, but the repairs you’ll have to make eventually can take a big bite out of your savings. A new roof, a new air conditioning system, or a new heating system will cost thousands of dollars. A good rule of thumb is to save 1% of your house’s value each year and set it aside for repairs. Even then, those savings may be depleted in the event that you have major repairs to make. In that case, taking out a home equity line of credit may be your only fallback.
Unexpected medical bills are one of the primary reasons households go into bankruptcy. No one expects to break a leg or have a heart attack, but when that happens the costs can go through the roof. Learn the ins and outs of your health care plan and make sure you can estimate how much you might owe. Every plan has both a deductible and a maximum out-of-pocket cost.
You should have at least the deductible amount saved up, and preferably be closer to the maximum out-of-pocket costs. You might also want to think about setting up a health savings account (HSA) if you’re eligible, which will allow you to pay for qualified medical expenses with pre-tax dollars.