This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.
Even if you have a working budget, there is a set of expenses that will make or break your spending plan. Unfortunately, these expenses are overlooked or ignored. Most people don’t realize that there are four tiers where expenses should be categorized.
The typical budget includes the following categories:
The first category includes Non-Negotiable Expenses because they help to meet your basic human survival needs of shelter, transportation, food, and water. Expenses like mortgage/rent, car payment, electricity, utilities, primary (health, home, auto) insurance, groceries, and water are primary expenses. These types of expenses must be paid on time to sustain a comfortable lifestyle.
The second category includes the NBD’s (or Necessities By Default Expenses). These are not as important as the non-negotiable expenses, but enhance the quality of life. The NBD’s include expenses like a cell phone bill, cable bill, personal loans, student loans, and credit cards. These expenses either protect our assets, help us pay for things we want and desire, and enhance our lifestyles, also known as “societal norms.”
The fourth category includes Enrichment Expenses, which are activities and expenses that enrich your 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 your enjoyment of life.
So then, what is the THIRD category?
Unfortunately, most people forget to include the third category, which is for “safety-net expenses.”
These set of expenditures don’t cost much upfront, but they can save massive amounts of money in the long run. This category is just as important as the categories one and two.
The Forgotten Category of a Successful Budget:
“Safety-Net Expenses”
Safety-net expenses increase the success of any budget or spending plan. Here are a few examples of safety-net expenses that could be helpful with alleviating high costs upfront:
Emergency & Retirement Savings Funds
“40% of Savings Fund Americans could not come up with $400 in the event of a financial emergency.”
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. A separated 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.
Most companies have eliminated pensions. Therefore, it is your responsibility to build up enough cash so your future self can live comfortably for the longest vacation of your life, called retirement.
Also, contribute to your employer-sponsored retirement plan, like 401-k. If necessary, start low with 1-2%. Increase your contribution 1-2% every year up to the maximum, especially if your employer matches your contribution. That’s free money that will accelerate your savings. This expense comes with tax advantages.
If your employer doesn’t offer an employer-sponsored retirement savings program or you are self-employed, open an IRA (Individual Retirement Account). Consult with a trusted financial advisor or tax accountant.
Vehicle Repair Service
One of the biggest 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 dishing out thousands of dollars and committing to years for a dealership extended warranty, consider a low-cost month-to-month vehicle repair contract, like Toco Warranty.
While you can take care of your car with preventative maintenance, if your car is 5 years or older, you’ll want to be ready for any unexpected repairs with a vehicle service contract. Toco is a pay-as-you-go vehicle service contract that fits within any monthly budget and canceled at any time. It can protect your budget from significant car breakdown expenses if the manufacturer warranty won’t cover the repair or it has expired. (For 50% off your first month, use code BOSS.)
Home Warranty
As a homeowner, when the refrigerator, water heater, or HVAC system breaks down, it is not only inconvenient, it is also expensive. Paying hundreds to thousands of dollars for these repair can destroy most people’s bank accounts and budget.
A home warranty is a safety-net expense that will protect your budget and savings.
Cell phone insurance
If your cell phone is your primary phone for your home or business, cell phone insurance is a great safety-net expense.
If your phone is lost or damaged, this small monthly expense can save you hundreds of bucks on a new phone.
These and other safety-net expenses will protect your family’s financial stability with their affordable monthly payments and will increase the success of your spending plan.
The Best Way to Balance Your Budget
If you find that you need to reduce expenses to fit your monthly, consider reducing usage-based expenses in categories 1, 2, and 4, specifically curbing your energy use or pulling back on expenses like eating out, credit cards, or enrichment expenses.
Avoid cutting or eliminating the safety-net expenses to ensure that your financial foundation and stability are protected.
What are other Safety-Net Expenses that we should include in a Successful Spending Plan?
