How Do You Handle Unexpected Expenses?
Just as I was finalizing our budget we got hit with some unexpected expenses. While the expenses themselves weren’t completely unexpected, the dollar amounts were. Adding in large ongoing expenses can completely throw off a sound financial plan if you aren’t careful.
Here’s the big three expenses that we just recently found out about:
Preschool Sticker Shock. We just enrolled our son in preschool for the fall. I honestly thought that what we were paying our nanny was already pretty high; especially since she works part time. That was until a week ago when registration started for preschool. The costs range from $7,000 to over $18,000 per year. We checked out a couple schools and the costs are pretty similar. This will be on top of what we pay our nanny since we pay her virtually the same for two kids as we did for one. We selected one of the lower cost programs, however, it’s still a large addition to our budget.
Our property taxes doubled. This was somewhat expected since we knew when we built our house two years ago what the going mill rate was. The first year our house was only half built at the time of the assessment so our taxes were about half what they are now. The unexpected part will be how our mortgage company decides to escrow it. They have a formula to make sure that you always have the minimum in your account, what results is overpaying your expected taxes. Therefore the change to our budget will likely be more than the taxes.
Motorcycle insurance increased by almost 400%. We just got our advance notice that the motorcycle insurance for my husband’s motorcycle skyrocketed. Unfortunately, it wasn’t due to any accidents or tickets but rather a surcharge for a “super-bike.” Obviously, we will be shopping other companies to compare prices, but it becomes a little tricky when many of the companies want to insure the whole account (cars, house, umbrella, etc.) Our other option is self-insuring. Because we live in a state where insurance is not required if you can prove financial responsibility, we may opt to take this route depending on how things fall into place. However, I’m not very keen on that idea (and I don’t generally recommend this to people) when liability insurance is at stake.
Where Does the Money Come From?
Since I run a pretty tight budget anytime we have multiple ongoing expenses to adjust for another category must be decreased or we must earn additional income. What is frustrating is that we just finished our annual budget and determined how we will prioritize our expenses. We keep a little extra money on hand to handle some unexpected items, but getting hit with three large items at once means we’ll need to go back to the drawing board.
Action Plan
I haven’t decided exactly how to handle them just yet since they won’t be effective until later this year. I do know that I don’t want to jeopardize any of our financial goals for 2008. We will get quotes for alternative insurance and I might look into challenging our assessment.
How do you handle unexpected expenses?
You can save a bunch of money on motorcycle insurance by switching to GEICO.
Actually, I’ve found that Geico is NOT the cheapest for motorcycle insurance. I have them for my auto insurance and even taking into account the multi-vehicle discount, it is cheaper for me to insure my bike with Progressive.
“the motorcycle insurance for my husband’s motorcycle skyrocketed. Unfortunately, it wasn’t due to any accidents . . . ”
I’d change that to “fortunately”.
While I’d be grumpy about the charge it’s far better than the cost of an accident.
I use an insurance broker to help me find the best deal on insurance. The broker represents a number of insurance companies. It’s easy for them to identify the best deal for me.
Also, because they speak the insurance “lingo” they can work efficiently with the insurance company. Once I called the insurance company directly for something I thought was easy. I wanted insurance on the contents of my storage space. The insurance company said they couldn’t do it. Then I turned to the broker. They were able to get the insurance policy for me by referring to it as a variant of home owner’s insurance. Sometimes it’s all in the terminology.
Is that some sort of specialized preschool? We pay $95 a month for two mornings a week (3yo) and $130 for 3 mornings a week (4yo), and it’s an excellent school. Are you really going to pay $1,000 per month or more?
I’ve expressed my chagrin over preschool and private school fees where I live (the SF Bay Area) in some recent posts I’ve written.
I understand the nanny + preschool issue. Lots of my friends have this situation. I also have a sitter come on occasion though I have family living with me to help me out with my kids as it is (thank goodness!).
Preschool in the general vicinity of San Francisco is $1000 a month. If it’s 3 times a week, half day, you pay $700 – $800 a month. It’s crazy. Private school ranges from $7K to $30K. When the governor is threatening to cut funding to our schools, we parents all feel quite concerned about what to do about primary school. Private school — should we or shouldn’t we? Can we afford it? Tough choices here…
Thanks a lot for the link.
I’m not sure about self-insuring for motorcycle liability – we were talking more about having larger deductibles.
Another option is to get rid of the bike – I considered getting one when I was single but now that I’m a father I would never consider it – mainly because I know I would drive like a maniac with it.
Mike
Wow! that’s a lot of money for preschool. My husband and I have decided not to send our soon to be 3yo to preschool next year because it costs $1600 for the year! I couldn’t imagine paying more. Ok, granted another reason we refuse to send him is because it’s a christian preschool and we are jewish, but still.
We handle mayor unexpected expenses by having an emergency fund. But in your case it sound the expenses wre somehow planned or even expected (except motorcycle)you just didn’t know the amount. When we have expenses like these, were they haven’t hit us yet so there’s time to prepare for them we start adjusting our budget to reflect them now. Thatw ay when they start coming in there would be some savings to use and the impact on our budget would be less.
That DOES sound like too much for pre-school. I send my children to a private school and it’s about $1,000 per month for all three (8th grade, 7th grade, and 2nd grade)
I know this is pretty inexpensive, but $1,000 per month for one in pre-school doesn’t sound right.
Wow! That is a LOT of money for preschool. Why is it so much?
As for unexpected expenses – I have an an actual category in my budget labeled ‘Unexpected Expenses’… money is deposited into interest bearing checking, and I can access it when something like you mentioned comes up…
Wow… again, that’s a LOT to pay for a pre-k kid to go to school!
NCN
That’s how much preschool costs here in Los Angeles – where my wife teaches, it is $1,300 a month. And that is on the low end.
Thanks for the mention Madison…
Oh, and Madison – what state do you live in? We have a great insurance co that saves us a ton that might be in your state as well…
The motorcycle…
@ Minimum Wage and Savvy: Thanks for the tips, we’ll check with Geico and Progressive.
@ Marsha: You’re right! It is fortunate that it isn’t due to accidents. Luckily I’m very familiar with the insurance industry, so I won’t have to worry about and confusion on the terminology, but your idea to use a broker is a good one.
@ Mike: I would love to get rid of the bike… but of course since it’s my husbands favorite hobby he probably wouldn’t be too happy with me!
Preschool…
@ Mia, Mercedes, Ron and NCN: We actually chose the plan that is $580 per month for 3 mornings a week. The option for 5 full days is the $1400 plan. However on a dollar-per-hour cost it is pretty comparable to the other schools around and any day-care alternatives. The cost is mainly due to a higher cost of living in this area. Part of it is the preschool that we selected has a terrific program with a focus on the environment, similar to a Montessori school. However, we did price other preschools and didn’t find much savings.
@ Digerati Life & David: Even though the prices are a little ridiculous, I’m glad to hear that I’m not the only one that faces these kind of prices for preschool…. it is crazy! Luckily we have an excellent public school system here in Wisconsin and we will send our kids there when they are old enough… for free!
A motorcycle? That is an individual expense that should not be attributed to both parties in a couple and certainly not in a household that has a kid or two. I would see that as on par with an addiction to $400 high heels, with the added problem of the risk of accidents. Guess I feel that there should be an agreed-on core of shared expenses related to necessity and then if parties in a family or household want to have the niceties or motorcycles in life, they figure out how to get those on their own, whether these people are married or roommates or whatever.