THE BLOG
02/01/2013 10:26 am ET Updated Apr 03, 2013

What To Do When Unexpected Expenses Occur

Unexpected expenses are almost a guaranteed way to make sure that a person or family breaks their budget. There are ways to make sure that things such as a higher tax bill, car repair, or unexpected trip do not ruin you or your family financially.

The recent budget crisis in Washington D.C. caused many people to realize that their personal budgets were based on their known expenses. Throughout the crisis, many people wondered what would happen if they suddenly owed an extra 5 percent of their income in taxes, or what they would do if they were to lose their job. Fortunately, it is possible to adjust your budget to plan for unexpected expenses.

In order to prepare, it is necessary to find a credit line to take care of immediate emergencies while saving cash to pay for future unexpected expenses. A credit line, such as a home equity line of credit or a credit card, typically comes with a high interest rate. Because of this, it is generally a good idea to be sure that anything that is purchased or paid for with the credit line is completely necessary. Using it to buy luxuries will result in high-interest debt that can be difficult to pay off.

In the case of an emergency that happens before you have enough money saved, having a readily accessible credit line will be important. By obtaining the credit line before the emergency occurs, you will have the luxury of taking your time to find a good interest rate and favorable credit terms. Waiting until after the emergency usually means dealing with the first offer that comes along. In the case of a serious emergency, such as a job loss, it may be impossible to open up any type of new credit line. After using credit to pay for the expense, make sure you work the minimum payments for the loan into your budget. Ideally, make whatever cuts you can to pay off the debt as quickly as possible.

Of course, the ideal situation is to pay for an unexpected expense with cash. In order to do this, however, it is important to have a plan in place to save the money. The easiest way to do this is to set aside a portion of your income each month to go into an emergency savings account. Then, when something unexpected does occur, use the money in this account to pay for it.

Do not be discouraged if the money in this account seems to disappear quickly. Spending this money on emergencies is better than taking on debt. For more tips and advice, visit the website FastCash.org.