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How Do You Handle Unexpected Expenses?

Just as I was finalizing our budget [1] 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 [2] 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. [3] 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 [4]. We will get quotes for alternative insurance and I might look into challenging our assessment [5].

How do you handle unexpected expenses?