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I recently got a frantic call from a friend that went something along the lines of, “Oh no, I just realized my camp tuition balance is due today and now I’m going to have to raid my savings and go back down to $0.”
I’m extremely sympathetic to people who fall victim to surprise expenses. And I know how frustrating and potentially damaging to your personal finances it can be to have a sudden bill pop up out of the blue.
But that conversation with my friend annoyed me for one big reason: My friend should have realized her camp tuition needed to be paid in full because she was told in advance that that would be the case. And instead of pulling the money from her savings account, she should’ve been setting separate funds aside.
In fact, in my experience, I tend to hear the following things referred to as emergency expenses. But in my humble opinion, they’re anything but.
1. Quarterly property taxes
Some people pay a larger amount to their mortgage loan servicers every month, and in exchange, their property taxes are taken care of. But others, like me, may opt to pay those taxes on their own.
Property taxes usually come due on a quarterly basis when you’re paying them directly. And if that’s something you’ve signed up to do, then your property tax bill should not, at any point in time, constitute an emergency expense.
Where I live — and I would have to assume that this is the case in most places — you get a single bill once a year listing your four upcoming property tax due dates. What I do when I get that notice is mark those dates on my calendar and then make sure I’m budgeting for those quarterly taxes as I need to.
If you pay for homeowners or life insurance once a year, it’s easy to see how you might forget that a payment is coming up. But again, payments of that nature really shouldn’t be a surprise or cause you to raid your savings.
Set up a budget that includes a monthly allocation toward insurance policies you pay for once a year. Or set up a separate savings account and transfer money into it monthly so you’re able to pay those bills rather than tap the cash you have earmarked for emergencies.
3. Home repairs
Sudden home repairs can absolutely fall into the category of an emergency expense. But home repairs that you’ve had lots of time to prepare for should not.
Let’s say you’re buying a home and are told that the air conditioning system probably only has another year or two left. What you should then do is research the cost of a replacement unit and start setting funds aside on a monthly basis to make that fix. If you ignore that information, save nothing for a new air conditioner in the following 12 to 24 months, and then suddenly end up with a huge bill on your hands, you can’t exactly say you weren’t warned.
Don’t set yourself up to keep raiding your emergency fund
Neglecting to plan for different expenses could lead to a scenario where your emergency fund runs dry. And that’s not what you want.
SecureSave says that 63% of Americans today can’t cover an unplanned $500 expense from their savings. And in some cases, that may be due to people constantly raiding their cash reserves for expenses they could have anticipated.
A better bet going forward is to make a list of all of your bills so you know to account for those you don’t pay monthly. Also, assess your home, car, and health to determine if any large bills in those categories are likely to arise. Doing so should help you better manage your paycheck so you’re not forced to deplete your savings and leave yourself without money for a true emergency.
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