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Can You Plan for Unexpected Expenses?

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When I think about the unexpected financial expenses the first thing that comes to mind is emergency funds. Most of the experts agree that having 6 months of income set aside for a financial emergency is necessary. In my head, that financial emergency is almost always the loss of a job. Perhaps that's because I've been there when I lost my job in the dot com melt-down of 2001. (In many ways, I think that's where the "work smarter, not harder" attitude of Lazy Man was born. I had worker pretty hard and rose up the ranks in the company - until the company was bought by another. All the social capital I created was worthless with the new management.)

While job loss is certainly a very valid reason to have an emergency fund (especially so in today's economy), lately I've been thinking about bigger problems. What about health care? I have very good health insurance, but many aren't so fortunate. What if my mom's health care is lacking and I have to take care of her? What if my brother hasn't listened to me about getting life insurance to ensure that his two newborns are provided for in the Worst Case Scenario? These costs can transcend the costs of 6 months of income.

Perhaps I'm becoming a worry-wart, trying to figure out all the ways that my hopes (and plans) for early retirement won't be derailed. I can't possibly cover every scenario, can I? I can't have insurance for every possible occurrence, right? Yet, accepting defeat doesn't right either. There are people who can withstand unexpected expenses.

I'm starting to realize that I not only have to plan for the security of myself and my family, but I have to plan for others as well. Does anyone else spend time thinking about this before it happens or do they simply react after the fact?

Posted on October 7, 2008.

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8 Responses to “Can You Plan for Unexpected Expenses?”

  1. I worry a lot about the future and what our plans are.

    My husband and I are contributing to our 401Ks. We have set up an Emergency Funds account and We have opened a college savings account for my little sister. Also, we have talked about and are in the process of writing out what would happen if either one of us dies as well as buying life insurances. He wants to be sure that I am taken care of if he passes and that the house is paid off. I want to be sure that my sisters are taken care of and that they have their own place and money to take care of themselves.

  2. David says:

    There, you’ve identified the number one reason people go into bankruptcy in the U.S.: medical bills. THAT is why universal health care shouldn’t be the political pariah that it is. The truth about universal health care is that, despite the downsides, it will make it possible for you to get sick without losing your house, your car, your credit, your savings, your investments, your credit rating, and possibly your job as well. Right now our healthcare system is sort of like the poverty lottery, medical outcomes aside. You’re right to be worried about it. I know people who have hundreds of thousands of dollars in medical debt because of one of their family members died more slowly than most. Invest for the future by buying better insurance – if, in fact, you can. Most likely you can’t get 100% coverage anywhere.

  3. Stacey says:

    My parents refuse to buy long-term insurance, and it scares the heck out of me. Did you know that nursing homes and hospitals can now go after children and other family members to pay bills?

    There is no way we can prepare to pay for our parents’ long-term care, and it’s terrifying to think we may one day be asked to do so. We “may” buy them insurance in the future but only with their permission.

    In the meantime we’re covering our own bases with insurance. My husband and I were pleasantly surprised by how inexpensive life and disability insurance is for young adults (23 and 24). It seems foolish to not plan for the future and worse-case scenerios.

  4. My parents in Russia figured out how make money. (Thanks, God!)My 75 yeas old mom is so smart! (I love you mom.) I don’t think I have to worry about them. Not only my mom makes 10 times what her state pension is, she thinks nothing of hopping on the plane and come to visit me in the USA and pay her way too. You got to love mama like that. Although she has other great qualities, but being resourceful like that is one that amazes me.

    Now to more sober side of my life. My husband is seriously ill and I take care of him and I spend a big part of my earning on his care. Over the years, I learned how to take care of someone who simply can’t be insured. It is tough, but is also very rewarding emotionally.

    I don’t think you can plan for that, you just have to roll with the punches. I always prepare for the worse. I want to be pleasantly surprised if things turn for the better.

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  6. Slinky says:

    I worry about having to take care of my mother. I know that she doesn’t have any retirement savings at all. My brother has a 1 year old and isn’t very financially savvy, so I know that I will most likely have to foot any bills as she gets older. In a few years, I’ll hopefully be set up a little better, and I’ll either start putting some money away in investments until it’s needed or give the money to my mother to put in a Roth IRA or something.

    I also started a 529 plan for my nephew. It’s better for him if it’s not in his parent’s names, and I don’t think they would have even thought of it. I contribute for his birthday and Christmas and am letting all the other relatives know how to contribute if they want to.

  7. Tim says:

    @David: that is simply untrue. many people are banting about the harvard study that was reported with much fanfare in the media that over half bankruptcies due to medical costs. first the co-author admits her agenda is universal health care. second, the word choices and facts are misleading. medical costs were less than 10% of the debt claimed in a bankruptcy; moreover, only about 17% of all bankruptcies was medical costs predominant and most of them were below or at poverty level, not middle class. so is it the medical cost that broke the camel’s back or the other 90% of the debt?

    As far as contingencies: the x month’s of expenses is geared towards income disruption and not non-income disruption emergencies. In addition to x month’s, we also save for at least two major repairs (e.g. car and house). I am a proponent of having contingency funds tailored to the individual’s risk of certain things happening.

  8. I think an emergency fund is a great idea. I too have been thinking about it a lot recently and as you can see in my article, it’s actually titled in such a way to scare people into doing it. I mean, how often does one think one’s job is a crumbling foundation.

    Good luck getting yours started.

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