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With the holidays around the corner, many households are saving up for gifts, family and friends get togethers and more. This means many people are not saving for the unexpected expenses, which may force them to cut into their gift-giving budget in the event of emergencies.
So what happens if the car breaks down? Or if the heater conks out during the winter and needs repairing?
Safety-Net Expenses can eliminate the worry of where the money is going to come from to repair that car or HVAC. But what exactly are Safety-Net Expenses?
Instead of the standard three known categories of a budget, I like to think of expenses in four different categories, or buckets, by order of importance:
Non-Negotiable Expenses
Non-Negotiable Expenses help to meet our basic human survival needs of shelter, transportation, food, and water. Expenses like mortgage/rent, car payment, electricity, utilities, groceries, and water are primary expenses that must be paid on time to sustain a comfortable lifestyle.
The NBD’s (or Necessities by Default)
NBD Expenses are not as important as the non-negotiable expenses, but these expenses enhance the quality of life. NBD’s include expenses like a cell phone bill, cable bill, primary insurance (health, homeowner, auto), personal loans, student loans and credit cards
Enrichment Expenses
Enrichment Expenses are activities and expenses that enrich our mind, body, and soul. Expenses like vacations, beauty & self-care, entertainment (Movies, Netflix, Hulu), retail (Shopping, Amazon Prime), gym membership, etc. are not required. However, they increase our enjoyment of life.
Safety-Net Expenses
According to ABC News, “40% of Americans could not come up with $400 in the event of a financial emergency.”
Unfortunately, many households forget about or ignore this category. However, these low cost expenses can be the most important to protect our financial stability. Safety-Net Expenses are a set of expenses that don’t cost much upfront, but can save massive amounts of money in the long run.
So which Safety-Net Expenses should we pay attention to protect holiday shopping budget and financial security throughout the year?
Emergency Savings Fund
Set up an automatic direct deposit of a certain amount or percentage of your pay into a savings account. Establish the savings account in a financial institution that is separate from your primary checking account. Having a separate savings account will eliminate the ability to transfer funds from your savings when hit with spending temptation. Having this savings fund will protect your family’s financial stability in the event of an emergency or accident during the holidays.
Vehicle Service Contract
One of the most significant unexpected expenses that is the biggest holiday budget buster is a vehicle breakdown.
According to a survey done by Toco Warranty, “Around one-third of Americans own a car that is at least seven years old, which means a breakdown is inevitable.”
Instead of committing to thousands of dollars and years for an extended dealership warranty or dishing out thousands of dollars for unexpected repairs, consider a low-cost, month-to-month vehicle repair coverage contract like Toco Warranty. What I love about Toco is that it is a pay-as-you-go vehicle service contract that fits within any monthly budget and can be canceled at any time. It can protect your budget from significant car breakdown expenses that happen during the holidays and throughout the year. It can also be cheaper than an extended warranty from the dealership.
*For 50% off your first month, use code BOSS
Home Warranty Coverage
Many things that are not covered under a standard homeowner’s policy as a result from neglect or failure to properly maintain the property. Damages from termites and insects, bird or rodent damage, rust, rot, mold, and general wear and tear are typically not covered. Damage to appliances and HVAC (heating, ventilation and air conditioning) breakdown is also not covered.
The worst time for the HVAC system to breakdown is in the summer and winter during the holidays. These are the times that repairs cost the most.
Investing in the right home warranty coverage will protect your budget from the excessive expense of appliance or HVAC repairs or replacement during the holidays and throughout the year.
These and other safety-net expenses will protect your family’s financial stability with their affordable monthly payments, and can help you budget to spend even more during the holidays.
If you find that you need to reduce expenses to fit your monthly, consider reducing usage-based expenses in the other categories, specifically curbing energy use or pulling back on auxiliary expenses, like include eating out, credit cards, or enrichment expenses.
What are some Safety-Net Expenses that protect your budget from excessive unexpected expenses?
Originally published Oct 10, 2019
