Americans Assess Their Saving Habits: Unexpected Expenses

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Here is an interesting survey from the Pew Research Center – Americans Assess Their Saving Habits. A lot of the results are what you would guess:

  • Most people (77%) say they are always trying to save money.
  • Most people (63%) also say they aren’t saving enough.
  • Housing, cars, and utility bills are the hardest to afford.
  • Dining out, entertainment, and shopping are the most common areas that people splurge on.

What caught my eye was the section on unexpected expenses. About a third of adults say they had an unexpected expense in the past year that “seriously set them back financially.” Among this group, here is the breakdown of the top 4 most common expenses:


By these numbers, the average American this year will have:

  • 11% chance of having a significant unexpected medical bill, and a
  • 8% chance of having a significant unexpected car expense, and a
  • 7% chance of having a significant unexpected housing-related expense

My conclusion? Expect the unexpected. It’s only February and we’ve already had unexpected family-related expenses in 2007. I think an allowance for such occurrences should be included in our budgets specifically, and not just reserved as a reason to use the emergency fund.

Do you budget for the unexpected? Or do you just let it happen and deal with the ups and downs?

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  1. Also a good argument for having:

    1. insurance (health etc)
    2. a couple year old car
    3. an emergency fund

  2. Unexpected expenses….that’s the story of 2007 for me!

    Our family is growing (about a year earlier than expected)

    Rear calipers were BLOWN OFF my car (~$800) (They tell me the month of extreme cold and age were to blame)

    That leaves home and medical…. duh-duh DA!

    I obviously need a little better planning for these top 4 expenses!!

  3. My spouse and I have had an emergency fund set up for quite awhile. A couple of years ago, we paid off both cars and have been saving the car payment in a money market at ING Direct. The goal is to save $10k for car emergencies and the eventual replacement (it would be pretty sweet to buy a new/old car with cash!!).

    We also contribute to a money market dubbed the ?Home Improvement/Money Pit Fund?. Needless to say, there is no shortage of ideas on how to spend this money!!

  4. This is where your tracking of expenses becomes extremely valuable. As unexpected as these expenses are, a history of unexpected items starts to pinpiont in an uncannily accurate way what you really can expect.

    Knowledge tends to smooth the ups and downs considerably.

  5. I save 10% of my gross income a month for irregular (but anticipated expenses). This is like what you describe above since I expect to have these unexpected expenses throughout the year. If for some reason I would use up that stash and couldn’t do some accounting magic to fix it due to it being a huge expense, then I would dip into my taxable ETF portfolio which I also save 10% (gross income) in every month (serves as emergency fund). This is all from the “60% Solution” which I swear by and you can find here:

    Click on the first link in the search results.

  6. I was thinking about this very question when I started your budget challenge at the beginning of this month. Pear budget calls them “irregular” expenses. But I don’t see any reason to budget for these things specifically. I thought that was the whole point of living beneath your means. By living reasonably and saving a generous portion of your monthly paycheck (some going to retirement, some going to cash savings, or whatever) then when and if any unexpected expenses come up you can use that money that you have saved.

    As an example, say I was filling out my monthly budget and I earmark $75 a month for car repairs. At the end of 6 months I have $450, great, thats enough to pay a deductable. But if I didn’t earmark that money at the beginning of the month then I would have an additional $75 each month, and it has to go *somewhere*. So it gets put into savings and then when and if it is needed (this year, next or the next) it can just be withdrawn and used at that time.

  7. The Financial Ladder says

    We don’t. Any extra will just cut into any surplus we might’ve aquired. And if there’s no surplus, it simply cuts into the budget as an unexpected expense.

  8. We used to budget around $100/month for household repairs, but we have a newer house now and have not needed to, yet. We just use the emergency fund when problems arise. We do budget money going into the emergency fund, though, so it probably works out the same.

  9. this is why your emergency fund should consist of your contingency fund (3+ months expenses), medical, auto, house, insurance at a minimum. these are things that have a high probability of occuring. If you have elder parents or family that has health issues, you might add emergency travel (this also applies if you travel frequently). If you have kids, then separate kids line is necessary. I’d also include maybe a lawyer line. you should be able to pay deductibles in case of insurance issues. you should be able to have enough saved for a major car repair, a home water heater replacement, medical copays.

  10. We have no budget at all. We have a healthy leftover by the end of the month that we dont need to budget.

    We always paid cash for our cars. Repairs are a bitch but its part and parcel of having transportation. Still beats buying a brand new car and getting hit with the 1-3 years depreciation. I always buy 3 year old cars for about half the price of the brand new. The ‘leftover’ money is part of maintenance I guess. I think if u spend more than $1000 to $1500 a year on ur car, its probably best to change it.

    It actually saves me to have a car than taking public transportation.

    Best used cars that require almost no maintenance are camry’s and civics/accords. (based on my experience)

    Had a 93 camry that was driving like a 2007 car. in the 4 years owning it, i spent maybe $400. Hit a deer. So now bought a 99 camry for $5000 that runs like a charm. Expect to own it for another 4-5 years.

    In my lifetime, had 3 toyota’s…..there is a reason why toyota is becoming the number one car manufacturer in the world (or are they already?). They are simply the best cars out there.

  11. Health insurance is key. A friend without health insurance recently went to emergency room for belly problems and ended up with a $6,000 bill! She’s just lucky that she didn’t need surgery, which would have really put her in the hole. No emergency fund, no health insurance, and now with huge debt.

  12. Sally,

    Your friend can get health insurance for around $40 to $100 a month.

    If your friend can only afford a certain amount, go for a high deductible (like $2500) that the BIG expenses are taken care of. It works the same way as car insurance.

  13. I really don’t budget either. I just spend below my means and automatically save the rest.

    After reading the post about health insurance, I’m so thankful I have that. Health is expensive if you pay for it on your own.

  14. We have a pool of money to cover our unexpected expenses. Insurance does provide some sort of a buffer.

    Over the years, I have noticed (with myself and with other poeple) that most of *unexpected* expenses were in fact *unplanned* or *miscalculated* expenses. For example, I drive a junker Nissan that might die on me anytime. If I don’t plan ahead for repairs on this car…if I am not prepared when the repairs hit me…it’s a case of bad planning…not an *unexpected* expense.

  15. The unexpected expenses hit me this weekend. It wasn’t entirely unexpected, but me and my fiancee decided that we need a new mattress. We’ve known this for about 6 months now, but this weekend we finally went out and bought it. It occurred to me that most people pay between $50-$120 a year for a mattress. How many people put money aside for a mattress?

  16. Joseph Sangl says

    You should always save for THREE categories:
    1. Unexpected emergencies
    2. KNOWN, Upcoming expenses (taxes, quarterly insurance, Christmas, tires for the car, clothes for the kids, etc.)
    3. Your dreams

    The car WILL break down. An appliance WILL fail. Something in the house WILL break. The children WILL get sick and go to the doctor.

    If a car breaks or an appliance fails, it should NEVER be an emergency!

    A quick, simple way to save for the known, upcoming expenses is to list all of your non-monthly expenses and their cost for the year. Divide the total by 12 and save that amount every single month. When each bill comes in, you will have it covered!

  17. Lazy man and money, the problem with matresses is that people buy crappy matresses on which they will spend a 1/4 of their life. It sucks to plunk down a hefty sum upfront on good matresses, but it saves you in the long run. they last longer and a good fit matress will allow you to sleep better. same thing with furniture. solid wood furniture built with dove joints and such will last for years and years, but they have heavy upfront costs. if you spend $50-$120 per year on matresses, you are not getting a good matress. you shouldn’t have to buy a new one for 10+ years.

    i use to pool all the left over money into savings for whatever fund, but i’ve realized that I need to be able to see what it is going to be used for. if you have two emergencies at the same time, you need to know that you have budgeted for knowable emergencies.

    i like new cars and am willing to take the hit on the depreciation. i’m the kind of person that hates when someone else reads my newspaper before me. now i’m not that way with everything, just some things. I’m also one to keep cars for a long time, so i’m not worried about the depreciated value. I will buy a used car if maybe an old couple owned the car and drove like 10 miles a week on the thing. Or, i’ll buy a used car for specific brands, like a volvo. caveat to the camry’s and honda civics/accords; they also tend to have higher insurance b/c frequency of thefts. remember common cars are better targets for thefts for their spare part values.

  18. I’m also curious as to how much a “significant financial setback” is, according to the survey answers. $500? $5,000? I have a feeling it’s more in the $500-$1,000 range.

    A friend without health insurance (between jobs) just got hit with a $2,500 ER bill. All because he thought COBRA was too expensive…

  19. Thanks for this post and the link to the whole report. I’ve been looking for a list of the most common “emergencies.”

    I hang around a Dave Ramsey-ite board where people keep saying that the Emergency Fund is supposed to be for anything unanticipated. If you can forsee it, such as car repairs, health insurance deductibles, etc., then it’s not an emergency.

    My feeling is that if I already have a savings account going for car and house repairs, a Health Savings Account, and am saving each month toward a new car and for irregular expenses like property taxes–what exactly is the reason for having another 6 months’ worth of expenses sitting in a savings account?

    This list shows me that I do have the most common problems covered already. And 6 months’ of expenses sitting in cash would be a drop in the bucket if something really wacky happened–like being sued, or having our house taken through eminent domain for less than we owe on the mortgage.

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