Sometimes, life catches you off guard and hits you with unexpected expenses in the process. But those unexpected events—both good and bad—don’t have to sidetrack your finances. In this article, we’ll talk about ways to prepare financially before life trips you up. 

Want an app that can help? Simplifi makes it easy to prepare for the unexpected.

How to prepare financially for unexpected expenses

You have two main tools to prepare for the financially unexpected: establishing an emergency fund and investing in preventative measures. 

1.   Build a savings cushion

Your savings cushion isn’t exactly an emergency fund. It’s there to save your budget from inevitable expenses that you know will happen, but can’t predict when they will hit. Think car repairs, basic home maintenance, and smaller medical bills like needing new glasses. How much you save depends on your lifestyle and regular expenses, but $500–$1,000 is a great place to start. 

A healthy savings cushion safeguards your finances against these “expected” unexpected expenses. Having cash on hand means you won’t have to raid other savings accounts or put the expense on a credit card. You’ll also protect your credit score from new inquiries and a sudden debt increase. (Not to mention the risk of making late payments on debts you weren’t planning for.) 

Plus, paying with cash saves money on interest payments and card fees that come with using credit cards. Some businesses even offer discounts for cash payments to help you save more. 

2.   Save up an emergency fund

Your emergency fund is the first line of defense between you and an expensive, unexpected hardship. A solid emergency fund contains at least six months’ worth of rent and living expenses (groceries, utilities, transportation, etc.) In theory, it should be able to fully support you through at least six months of job loss. 

If you don’t already have an emergency fund, a budgeting app like Simplifi will put you on the right track. You can track your income and expenses and start allocating funds toward your safety cushion, emergency fund, and more! 

3.   Invest in preventative measures

Some expenses are too big (or too regular) to cover with your emergency fund. Others have another viable option: insurance. Either way, we’ll look at some of the most common expenses – expected or otherwise – you can offset with preventative measures. 

Medical care

Medical expenses are among the most common (and potentially bank-breaking) unexpected financial events. Fortunately, you can prepare for these by investing in good insurance. During a medical emergency, a high-quality insurance plan can be the difference between complete coverage and long-term financial hardship. 

Medical insurance is usually obtainable through your employer, which may limit your options. You can also buy private insurance or enroll through Healthcare.gov under the Affordable Care Act. 

When considering any health insurance — especially if you’re job hunting — examine the benefits package carefully. Consider the trade-offs between premiums, copays, and coinsurance for common or expected procedures. Most importantly, remember that a high-premium “full coverage” plan may not actually cover everything in an emergency. 

Car expenses

Many Americans drive daily for their work commute, to run errands, or to take their friends and family members wherever they need to go. For those who rely on personal vehicles for transportation, a sudden breakdown can mean a serious (and potentially expensive) life disruption. 

You can minimize the impact of these disruptions in two ways: 

  1. buying comprehensive insurance 
  2. performing routine maintenance

Comprehensive insurance will protect you financially in an accident, regardless of who (or what) is at fault. Meanwhile, frequent maintenance — oil changes, tire rotations, etc. — will reduce the chances of a major mechanical failure. 

Job loss

Layoffs are a difficult reality you may face, especially when the economy sours. In a pinch, a healthy emergency fund paired with unemployment insurance can float you through a period of joblessness. But you can do more to protect yourself with “career cushioning” — essentially, building an employment safety net for uncertain times. 

Start by keeping your resume, LinkedIn, and other career boards up to date to simplify your job search. Stay on top of important career developments by taking classes or courses to gain new knowledge and hone your skills. 

Networking is also important — not just for job hunting, but as a source of advice and support. Maintain industry friendships to keep your network wide, and don’t be afraid to impress potential future bosses every chance you get. 

Another option is to start a side hustle. Maybe you make fashionable jewelry, enjoy mixing fancy party drinks, or enjoy being the neighborhood handyman. Whatever your skills, a secondary income source boosts your bank account now and can help you weather tough times later. And you never know – your side hustle could turn into full-time employment down the line. 

Household repairs

Household repairs can be incredibly expensive, potentially reaching tens of thousands of dollars. With regular maintenance and solid insurance, you can protect your finances from an eye-watering bill.  

Stay on top of household maintenance

Regular household maintenance can help prevent small inconveniences from growing into multi-thousand-dollar repair bills. This can range from changing your air filters and cleaning your drains and gutters to replacing your roof on schedule. 

Buy good homeowners’ insurance

Good homeowners’ insurance protects you when bigger household expenses pop up. A tree falls and damages your roof. Your house floods during the hurricane of the century. Or the neighbor’s kid breaks an arm in your house. 

The right homeowners’ insurance may cover all of these. But it’s important to shop smart — ideally, for a comprehensive coverage policy. For instance, some policies don’t cover natural disasters, depending on the provider and location. You’ll also want to disclose potential hazards like pools and trampolines to ensure total protection. 

Don’t forget about renters’ insurance!

Renters have their own form of financial protection: renters’ insurance. These policies cover you, your belongings, and certain incidents in the event of emergencies. Every jurisdiction sets their own rules regarding what renters and landlords must cover respectively, so be sure to research what you need. 

Taxes

Nobody likes to pay taxes – but over-paying is even worse. Take steps to ensure you’re making smart tax moves, like:

  • Looking up your tax bracket to compare what you owe to what your employer withholds annually. If you regularly receive large tax refunds, consider trimming your withholdings to keep more money throughout the year. If you owe money at tax time, increase your withholdings to prevent late payment penalties. 
  • Researching available deductions. For instance, if you run a side business, you may qualify for extra breaks like the Qualification Business Income (QBI) deduction that could reduce up to 20% of taxable business income. Individuals may also qualify for credits for having a family, acquiring an education, or investing in tax-advantaged retirement accounts.
  • Planning ahead for property taxes. Every state sets its own property tax laws. For instance, Californians can pay their taxes in two installments. Kentucky property owners have to pay in one chunk — but get a small discount for paying early. Knowing your state’s laws can help you earn discounts or avoid late payment penalties. Either way, it’s important to save a little each month so you’re not surprised with a monster bill at tax time.  

If that sounds like a lot to manage, particularly if you have complex finances, it may be worth paying a CPA to advise your tax strategy or even file taxes for you. 

Family

For many Americans, protecting their family is one of the most important goals of all.

Life insurance provides a safety net for your family when tragedy strikes. Policies come in all shapes and sizes, from covering end-of-life expenses to paying out hundreds of thousands of dollars. The right policy can mean the difference between your family facing financial hardship and grieving in peace during a tough time. 

You might also consider disability insurance to replace some or all of your income in the event of an ongoing injury or illness. Short- and long-term workplace plans and private policies can protect you financially when you don’t qualify for workman’s compensation. 

Ultimately, it pays to expect the unexpected and build your financial defenses accordingly. When life throws you a curveball, you’ll be ready to handle it.

Prepare for anything — automatically

You want to build up an emergency fund, but squirreling that cash away every month can be tough, especially when it never quite feels like there’s enough to go around.

Simplifi helps you safeguard your future by keeping you on track to meet your spending and saving goals — automatically. By building your goals into your monthly spending plan, you’ll be able to reach those goals without missing a beat.

Start today and see how great it feels to know your finances are protected, no matter what life throws at you. See how it works.