Although unplanned expenses are part of life, most people are not prepared for them. Sudden or unexpected costs, if not planned for, can punch a pack in your budget and throw your finances off track. That is why all budgets, when created should be able to cater to unexpected costs without putting you in a situation where you have to choose between buying groceries or fixing broken eyeglasses.

Identify unexpected expenses

Before doing anything else, the first and most important step to budgeting for unexpected expenses is identifying what they are so that you can prepare for them. Start by making a list of common unexpected expenses like car repairs, property taxes, dental or vision bills, winterization and house insurance.

If you have children, consider what you spend on their activities, sports commitments, school fees, music lessons etc. Take a look at your diary for the past year, along with your credit card and bank statements to see any unexpected bills you paid for through your banks such as a vacation get-away or a refresher course. Once you have listed all these unexpected expenses and they are on your radar, they cease to become unexpected.

Estimate annual cost of unexpected expenses

Use your list to formulate an educated guess on how much you will spend on each unexpected costs during a 12-month span. For instance, when considering your car repairs, think about how much you spent on maintenance in the course of the year. When it comes to your pet, think about how much you spent at the vet the entire previous year. You can also estimate your income taxes based on what you incurred the previous year.

If you have fluctuating income, have your accountant approximate any expected taxes payable. Just note that since these unexpected expenses are unknown, the guesstimate will not be
accurate. When you get the figures, divide them by 12. That is how much you want to put away on a monthly basis for each unexpected expense.

Set up an emergency fund

Although no one plans for their car to break down or their dog to get sick, these things happen. Having a solid emergency fund helps you prepare for such instances ahead of time so that they don't affect your finances. According to experts, you need about $1000 in your emergency account to start.

However, you should strive for 3 to 6 months’ worth of your monthly expenses. An emergency fund keeps unplanned expenses from derailing your money goals. An emergency fund provides an easy way to set aside money for unexpected expenses.

Make saving automatic

Even after setting up an emergency fund, you may realize that parting with the money is harder than it sounds. Although this money should be reserved for true emergencies, other small expenses tend to pop up quite often eating into your emergency fund.

Fortunately, automating your savings account can help prevent you from using your emergency funds to cater to minor costs. Set up organized electronic transfers through your online banking to a savings account that you don't have direct access to. Automatic electronic transfers help ensure that you don't forget to save up and keep the money safe from regular minor expenses.

Incorporate extra expenses into your budget

Another great way to budget for unexpected expenses is factoring them into your regular budget. You can do this by incorporating extra expenses rather than budgeting down to $0. For instance, if you think you will only spend $100 on toiletries for the week, consider by budgeting, $125 anyway. The extra money can help you prepare for small, unexpected expenses. Just remember not to spend this money accidentally simply because you have extra money lying around. If there are no unexpected expenses for the month and you don't spend the money, just add it to your emergency fund or savings account.

Unexpected bills are an unfortunate fact of life. However, do not wait for them to pop up and destroy your financial plans. Budgeting for unexpected expenses gives you the foresight to understand what to expect and what might be coming down the line, giving you a chance to anticipate it. This way, you will be able to cater for life’s expensive surprises without interfering
with your finances.