Planning for the unexpected

I got a question from Ashley regarding planning for the unexpected:

What do you do when you have unexpected bills coming in? I have crappy medical insurance and I think I’m in the clear with paying off my bills and than wham-o I go home and look in the mail box and there’s a hundred something dollar bill from some doctor I went to 6 months ago. Do you know of anyways to get that under control?

I’m going to take a page from Dave Ramsey on this one. I’ve been following his sytem, slightly modified, for a while now. If you want a good personal finance book to get yourself started, I would highly recommend The Total Money Makeover. It’s easy to read and he explains things really well. I’ll be doing a full review of the book soon.

The first thing I would recommend you do is to save up a small emergency fund: $1,000 (or $500 if you make less than $20,000 a year). Save up this money however you can but do it fast. Sell some stuff, cut back for a month, work some overtime if you can. Just get it into the bank fast. This will help cover you in the short term in case something comes up. Remember, this money is for emergencies only! Concert tickets, clothes or vacations are not emergencies. I have my emergency fund in an ING Electric Orange Account. It has a debit card on the account, which I leave at home. If I do need to access the money in an emergency, I can use that debit card.

After you have that set up, you need to do a monthly budget (I know I used the B-word). In that budget, you should try to put aside money each month for things like medical bills. If you know you spend $500 a year on medical bills, try putting 1/12 of that away each month. It’s a lot easier to budget $42 a month for medical bills than trying to come up with $200 unexpectedly. I use this method to budget for all sorts of things: gifts, vacation, my annual trash fee, my property taxes, car repairs, etc. I would keep the money in a savings account or an account like the ING Checking account. That way you’ll earn some interest on the money. You’ll also be less likely to spend it on something else if it’s not sitting in your checking account.

Budgeting for pets

Over the weekend, a friend of mine was talking about getting another cat, but she was worried about paying all those unexpected medical bills that can pop up. Having one pet get unexpectedly ill can have a huge effect on your budget; two pets can put you at a financial hardship. I suggested putting $10 away each month for each pet you own, just in case. We have three cats, so I would put $30 away each month for a total of $360 a year. This pays for their Rabies vaccinations every few years and any other medical bills we might have for them. If something major were to happen to any of our cats, we would have the money to pay for it. If the account gets really high, talk to your vet about the cost of major procedures and cap the amount in the account so it would be enough to cover a major event. Then put the additional money toward debt or another savings goal.