As a relatively new homeowner, I’m still learning how to deal with unexpected expenses of the residential variety. Home ownership brings with it a higher level of financial risk than most other things.
Yesterday, I came home to a leaking hot water heater. I’ve been looking at the thing since we bought our house two years ago, knowing that it was well past it’s life expectancy. Somehow, I was still caught off guard when it started leaking last night.
Have you ever been there? Things are going along just fine and all of the sudden BAM, something blows up. Maybe your refrigerator packs it in, maybe your car needs a transmission. Perhaps your roof has started leaking and you have to cough up several thousand dollars.
Sound familiar?
It’s disheartening, it’s discouraging. I don’t know about you but those unexpected expenses tend to throw my whole plan off track. I give up on trying to run a balanced personal budget.
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You can get through this!
If you find yourself in this situation you may start to feel panic, I know I do. When I saw that our hot water tank was leaking I went straight into panic mode. I started running a thousand different scenarios in my head about how much this would cost whether our emergency fund would cover it and how we were going to pay it back.
The most important thing to do in this situation is to keep calm and approach the situation with a cool head. Below are 5 tips you should consider next time you find yourself in a financial bind.
1. Decide if this is an emergency
Don’t panic like I did. Stop and ask yourself: “Is this something that needs to be dealt with right this moment?” Remember, most leaky roofs can be temporarily repaired with a tarp, a car can still drive with a noisy muffler and most creditors can be put off for a while if you convince them that you need some time. We could even make do without a hot water heater for a couple of weeks if we had to. It certainly wouldn’t kill us to heat water on the stove.
2. If you have an emergency fund, use it
This may seem simple, but many people like me are reluctant to dig into their hard-earned emergency fund, even for a legitimate emergency. If you’ve decided that this is something that legitimately can not be put off, then this is exactly what emergency funds are for. Use it and worry about replenishing it later.
My wife and I have a modest emergency fund and that’s how we were able to replace our water heater this week. It sucks to dig into that money. I’m always thinking two or three steps ahead so I’m already worrying about how we’ll replenish our fund, but that’s what it’s for.
3. If you have no emergency fund, tap into all available resources
If you’re really in a bind and have no savings, you’re in a bad position. There is a lot you can do to come up with money fast. Here are a few ideas that you should consider.
- Sell something to come up with cash. Maybe you have a stereo, motorcycle or some clothing that you’re not using much. Sell it now. You can always buy another when you get back on your feet.
- Ask family for help. This can work if you have a good relationship with your parents or siblings.
- Get an extra job. Even a part-time job at a coffee shop can bring in an extra $1000 per month and that will go a long way towards your unexpected bill
- Sell services. What you offer will depend on your skill set, where you live and what you have access to, but a few ideas are lawn mowing, babysitting, window cleaning, auto detailing or gardening work. Another option is to work online. If this is of interest to you, checkout websites like Upwork and Freelancer to see what kind of jobs are being offered and what kind of hourly rate you may be able to charge.
4. Hunt down the best deal that you can get
Everybody loves a good deal. Now is the time you really need to put your bargaining skills to work. If you’re getting an extra job or digging into your emergency fund to deal with this, you want to pay as little as possible for the work.
First, write a list of people you know that may be able to help you and contact them first. Depending on your relationship they may help you repair your car or house as a favor, or offer their services at a reduced rate.
If that doesn’t get you anywhere, post an ad to Craigslist. State what you need, and that you’re looking for the lowest price from a legitimate business. This last part is key, you don’t want to hire a random stranger to repair a water leak in your home or fix your car. Unless you’re dealing with a person you know, hire a company.
Lastly, start calling around. Call local businesses and request quotes. Get as many as you possibly can, this is important. Even for simple jobs prices can vary dramatically. You can save thousands of dollars on a roof replacement for example, by getting 10 quotes instead of 3.
5. Avoid going into debt
It may be tempting to use your credit card in a desperate situation, but I strongly urge you not to. Unless you’ve exhausted all other options and you have absolutely no choice, avoid using credit. All this will do is add 18% interest to an already bad situation.
If you have absolutely no choice, and need to use credit, follow the tips in step #3 to pay it back as soon as possible to avoid as much interest costs as you possibly can.
6. What you should do next
I have been in this situation many times and I know that it’s stressful. Like me, you probably don’t ever again want to find yourself with an unexpected expense that you can’t cover.
When you get to the other side of this, and things start leveling out, I strongly recommend that you save up a $1000 emergency fund.
Everybody should have at least $1000 socked away in a place they’re unlikely to touch to help deal with unexpected expenses. It’s enough money for the majority of things that will come up. You can get any appliance used for less than $1000. Few automotive or household repairs cost more than this and even if you need something like a new roof, $1000 will get it patched while you save some money up.
We have had an emergency fund for about 3 years now and have never regretted it.
Question for you:
What expenses have popped up and surprised you lately?
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Good points. An emergency fund is a great security blanket. My wife and I went throug this same scenario last year – except it was a water heater, geothermal unit, and roof – all in 8 months. Without an emergency fund we would have been in big trouble.
It’s such a good feeling the first time something major fails and it’s a nuisance rather than a tragedy. Thanks for commenting Chris!