Unforeseen expenses vs. saving

[misscity]

Hi,

Thanks in advance for reading, this may be long

I'm having a hard time managing these expenses that pop up each month that I am not properly planning for. Because I don't have an emergency fund, whatever cash I have goes to these expenses leaving me with very little $$ leftover to save for the emergency fund. It's a vicious cycle. In the past, i've used a credit card for such expenses. Then i'd pay it off and something else happens and then I used the card again. VICIOUS CYCLE!

Two months ago I spent $550 on new tires and I had no cash for it so I charged it on my zero balance 0% credit card. I did not want to take out of the very little cash I do have. Last month I had $165 in dental expenses that I also charged. This month I have a little bit more money saved. And of course, more expenses (what's up with that?!). I have some more car work to be done to the tune of $200 that I am paying in cash plus another cavity filling for $70.

How to plan for these random expenses PLUS an emergency fund? I've seen on the board people use their EF for such random expenses but what would I do if my company let me go? I couldn't pay for anything else if I kept chipping away for these unforeseen expenses. Should I be funding two separate accounts, one for random expenses and on for emergency fund? It would take such a long time to build it to the point where I'd have enough in both to feel more secure. After everything is said and done I only have about 500-600 to save and in the grand scheme of things that's nothing. Here's the breakdown:


Income: 2860
Rent: 975
car: 323
utilities: 30
cell: 60
cable/net: 80
renters ins: 12
gas: 140
tolls: 70
food: 150
credit card: 500 (was paying 50 a month, upping it to 100 next month)
general savings: 1700
vacation fund: 150

I'm left over with a little under $1000 a month after you take into account all the random things like buying medicine, doc visits, car expenses, household expenses, dry cleaning, etc, I've been banking an average of $500 a month. And that's with obsessive monitoring and being frugal. These are things I can't avoid. I don't go out to eat, I don't spend money on entertainment, I don't shop much, etc etc. I refuse to cancel cable since i'm always home to avoid spending money out. I like having tv as an option. Should I continue to fund my general savings with that $500 or should I start another savings account deduct maybe $100 a month automatically so that maybe next year i'll have atleast a $1000 set aside for such things? Just do the best I can now but properly plan for next year. I have no intention of using my credit card again. I have no debt aside from that $500 and my car loan and i'd like to keep all things owed as minimal as much as possible. Is that the best way to handle it? I how do I priorities my savings goals when these expenses are taking away from them? (for now my 1 goal is to have $4500 a month for atleast 3 month's living expenses in an emergency fund and $500 for travel expenses for short December weekend trip).


Thanks for your advice.

[Inkstain82]

Is there any way you can move to a smaller/different place? 1/3rd of your income to rent is a huge drag on your budget.

[misscity]

Hi,

That's another non negotiable. My apartment is actually cheap for my area. I could find a studio for maybe $50-75 less but I don't find it worth the hassle. I can't live with roommates, been there done that, I like it this way. My expenses are fixed as far as I'm concerned. Until I pay my car off in a little over a year at least. So I have to find the best way to plan savings with what I have left over.

[m3racer]

Plain & simple. You need more cash flow by finding a higher paying job or finding a 2nd job. I think your budget is fine.

[misscity]

My thoughts exactly. However I guess I have to make best with what I have and be thankful. I'm lucky to have my job and I HOPE I still keep it until this whole economy mess blows over. However, my income at this point should be much more.

[Inkstain82]

If the house is non-negotiable, and the area you live in is non-negotiable, and the cable is non-negotiable, and I'm presuming the 12% of your income toward a car is non-negotiable, then as mentioned above, you are going to need a higher income or a second job.

It's fine to refuse to settle for less than a certain lifestyle, but you have to do whatever it takes to pay for it.

[Joan.of.the.Arch]

Are you still at the front side of your work life? I would say that the way that we (DH & I) were able to set aside savings and get well ahead of unforeseen expenses was to keep our way of living very simple for several years. If you get really motivated, you always have that to fall back on. Paring down can give a boost that has effects for the rest of your years down line. For us, for example, I would say it has been one of the reasons we can retire early.

[disneysteve]

Originally Posted by Inkstain82

If the house is non-negotiable, and the area you live in is non-negotiable, and the cable is non-negotiable, and I'm presuming the 12% of your income toward a car is non-negotiable, then as mentioned above, you are going to need a higher income or a second job.

It's fine to refuse to settle for less than a certain lifestyle, but you have to do whatever it takes to pay for it.

I agree. You refuse to move. You refuse to live with another person to lower your expenses. You refuse to cut back on luxuries like cable TV. And you are wondering why you can't get ahead. There is nothing wrong with having a nice home, premium cable, driving a new car, etc. IF you can afford those things comfortably. It sounds like you can't. Something has to give. It is much easier to cut expenses than it is to increase income in most cases.

[Fizgig]

If there's $1000 left over from your budget and you're not managing to save money, that means there are some serious cash leaks that you don't seem to be tracking. $150 on food seems unlikely, and I don't see any line items for restaurants or entertainment. You say that you don't shop or go to restaurants, but somehow $1000 is leaving your wallet every month. Do you track your actual spending or is this a purely idealized budget?

Like the others said, your two options are to either increase your income or decrease your spending. Attacking your spending will have a greater effect, because you have to earn ~$1.20 for every usable dollar after taxes.

[disneysteve]

Originally Posted by misscity

I'm left over with a little under $1000 a month after you take into account all the random things like buying medicine, doc visits, car expenses, household expenses, dry cleaning, etc, I've been banking an average of $500 a month. And that's with obsessive monitoring and being frugal.

If you subtract just the expenses you listed from your income, you are down to $920/month remaining and you only listed a portion of your expenses. Add in the medication, doctor visits, car expenses, household expenses and dry cleaning, and I'm sure what's left drops even farther.

You need to keep a written spending log accounting for every penny in and out for the next 2-3 months so you can see how much you are actually spending and where the problems lie so that you can correct them.

[skydivingchic]

As disneysteve stated, you have not listed a whole budget. Do you know where the rest of the money goes? If not, you need to spend several months writing down every single penny you spend. You'll never get a handle on your spending and saving if you don't know where the money goes each month.

You used the word "unforeseen" to describe things like new tires and dental work in your thread subject line. This may seem like a bit of semantics, but these expenses are NOT unforeseen. You may not know precisely what will go wrong with the car or when you will need to visit a doctor. But you know without a doubt that your car will need maintenance and you will need to visit the dentist and doctor from time to time. You need to be attempting to estimate these expenses and start saving for them. It will probably take a little while to get it right, but it is better to be at least partially prepared for these irregular but perfectly expected expenses than to continue being "surprised" by them. Other things that fall in the "irregular but expected" expenses for you might include things like insurance, car registration, vet bills, memberships or subscriptions, gifts, etc. Unless there is complete catastrophe (major car failure like a transmission replacement, major medical problem like cancer, etc), I would not be using my emergency fund to cover these types of expenses. These types of expenses should be covered by regular, consistent savings separate from an emergency fund.

To answer your question about separate accounts, I would recommend you keep 2 savings accounts - one for the irregular expenses such as car maintenance and a second for your emergency fund.

As others have said, there are only two ways to address a money problem - spend less or earn more. You have stated that your expenses are fixed and you refuse to cut. That's fine, but it does mean you need to take a look at the second option of earning more. That means getting a second job or finding other ways of generating more income.

[misscity]

Originally Posted by skydivingchic

As disneysteve stated, you have not listed a whole budget. Do you know where the rest of the money goes? If not, you need to spend several months writing down every single penny you spend. You'll never get a handle on your spending and saving if you don't know where the money goes each month.

You used the word "unforeseen" to describe things like new tires and dental work in your thread subject line. This may seem like a bit of semantics, but these expenses are NOT unforeseen. You may not know precisely what will go wrong with the car or when you will need to visit a doctor. But you know without a doubt that your car will need maintenance and you will need to visit the dentist and doctor from time to time. You need to be attempting to estimate these expenses and start saving for them. It will probably take a little while to get it right, but it is better to be at least partially prepared for these irregular but perfectly expected expenses than to continue being "surprised" by them. Other things that fall in the "irregular but expected" expenses for you might include things like insurance, car registration, vet bills, memberships or subscriptions, gifts, etc. Unless there is complete catastrophe (major car failure like a transmission replacement, major medical problem like cancer, etc), I would not be using my emergency fund to cover these types of expenses. These types of expenses should be covered by regular, consistent savings separate from an emergency fund.

To answer your question about separate accounts, I would recommend you keep 2 savings accounts - one for the irregular expenses such as car maintenance and a second for your emergency fund.

As others have said, there are only two ways to address a money problem - spend less or earn more. You have stated that your expenses are fixed and you refuse to cut. That's fine, but it does mean you need to take a look at the second option of earning more. That means getting a second job or finding other ways of generating more income.

Thanks for your advice. I figured the best way to save for these irregular (no more being referred to as unforeseen) is to have a separate account aside for the emergency fund account. That way when I do have these random expenses pop up, I have something there.

My car will be paid off in or around December/January so no need to downsize there. My rent is very cheap, being in an expensive city area i'm lucky i'm not spending more. Average apartment in my area is $1200. I prefer to live alone. I'm perfectly comfortable with spending $975 on rent to live alone, my post was more centered around how to organize saving with I have left. I've been working for a couple years so as I build my experience in my field this will be my pay for atleast a little while more in this position. My work schedule does not allow time for a 2nd job. And I forgot to mention that I have doctor copays that total around $250 a month give or take for physical therapy. I really don't spend alot of money on going out, every now and then I have dinners out but not frequently. I'm in physical therapy 2-3 times a week after work or i'm working long hours on the other days. On weekends I spend time with my family who live a couple hours away and my mom tends to send over food and such which is why I manage to not spend alot of money on groceries.

[Inkstain82]

If you refuse to spend less and you refuse to make more, I'm afraid you are going to find that you never get any further ahead with saving than you are now.

[Bimmer]

Originally Posted by Inkstain82

If you refuse to spend less and you refuse to make more, I'm afraid you are going to find that you never get any further ahead with saving than you are now.

Yep, that's the vicious cycle, not the "unexpected" expenses.

[disneysteve]

Originally Posted by misscity

I figured the best way to save for these irregular (no more being referred to as unforeseen) is to have a separate account aside for the emergency fund account. That way when I do have these random expenses pop up, I have something there.

I'm perfectly comfortable with spending $975 on rent to live alone, my post was more centered around how to organize saving with I have left.

The best thing is to have a budget that has a reasonable estimate of the irregular expenses on a monthly basis. For example, if you pay $600 every 6 months for auto insurance, you should be depositing $100/month into your "irregular expenses" account.

I'm not so sure you are "perfectly comfortable" with your rent payment. If that amount was truly comfortable, you wouldn't be having the issue that led to you starting this thread because you'd have a lot more surplus in your budget.

How much longer will you be doing PT? $250/month is a huge drain on your income. I know from experience how quickly those $20 or $30 copays can add up.

[wnlbutterfly]

I agree about that "random" expenses too. You don't have your budget picture complete because you are leaving these out. Like the co-pays, car upkeep, meds, those are necessary budget items, even if you aren't sure how much they will be each month. Need to get a % figured out and put that into that other fund.

Hopefully PT will be done soon and that will give you the $250 a month as well as. When the car is paid off that will also ease up the budget. Sometimes we just have to hang on, but of course in the meantime you are charging the expenses which means you are spending more than you make.

[mommyof4]

OP, I have a blog site that may help you organize your finances for these unexpected, but oh-so-predictable expenses. I'm giving you a link to a blog site that explains Mary Hunt's system to build up an emergency fund, pay down debt, and set aside money for the regularly recurring expenses. The blogger does a really nice job of summarizing the steps to do this. I began using this system last fall, and it has made a HUGE positive impact in my spending/savings ratio. If you have any questions after reading through the blog, let me know and I'll see if I can help.

Beachgirl's Budget Blog: Debt-Proof Living, Part 1 - Tracking Your Spending

Also, I use this spread sheet to help me keep track of the money in my sub accounts.

http://www.mdmproofing.com/iym/files/freedomchart.pdf

[LivingAlmostLarge]

I struggle with the irregular expenses as well. I hate the fact that I stash like $1k/month for stuff I know coming like property taxes, car insurance, home repairs, etc! It feels like I should be spending or saving it instead of sitting in cash in a savings account. Until i use it.

[mommyof4]

Originally Posted by LivingAlmostLarge

I struggle with the irregular expenses as well. I hate the fact that I stash like $1k/month for stuff I know coming like property taxes, car insurance, home repairs, etc! It feels like I should be spending or saving it instead of sitting in cash in a savings account. Until i use it.

I know what you mean, but I keep mine in my interest bearing checking account ( earning a whopping .05% interest), and it's immediately available if I need it- I don't need to transfer it from savings to checking, etc. It's the best system I've ever used. I actually have two checking accounts - one for bills, and savings for the expected/unexpected/oh-my-gosh expenses, and then for spending, that I use for day to day expenses (groceries, hair cuts, clothing, lunch with friends, etc.). It works really well, too. I also have a separate emergency savings fund at an online bank that I contribute to on a monthly basis, too.

[MonkeyMama]

Originally Posted by mommyof4

I know what you mean, but I keep mine in my interest bearing checking account ( earning a whopping .05% interest), and it's immediately available if I need it- I don't need to transfer it from savings to checking, etc. It's the best system I've ever used. I actually have two checking accounts - one for bills, and savings for the expected/unexpected/oh-my-gosh expenses, and then for spending, that I use for day to day expenses (groceries, hair cuts, clothing, lunch with friends, etc.). It works really well, too. I also have a separate emergency savings fund at an online bank that I contribute to on a monthly basis, too.

LAL - I also save $1k/month. I put it in my high yield savings account. I can write checks out of that account (& I do, for the biggie - property taxes). But it only takes a day or two to transfer. It can take a day or 2 to transfer the money, but I know well ahead of time when I will need it. I could even see saving for some of these things in CDs. (My next property tax installment is not due for 8 months, a 6 month CD would be just fine!). You don't have to compromise interest rate on a "short-term savings" fund.