How to make sure you can always afford the expenses everyone forgets about

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Avoid Unexpected Road Trip Expenses

It's happened to all of us — we feel on-track with our spending for the month, and all of a sudden an unexpected expense sneaks up and slams us, immediately sending us over-budget.

There's the wedding gift you forgot to buy, that unlucky parking ticket, or the emergency flight home you booked.

"No matter how hard you try to avoid them, there will always be unexpected expenses," writes Ramit Sethi in his personal finance book "I Will Teach You To Be Rich."

There are two types of "disruptive expenses" that can wreck your budget, Sethi writes: known irregular events — such as vehicle registration fees, Christmas gifts, or vacations — and unknown irregular events, such as wedding or baby-shower gifts, late fees, and unpredictable medical expenses.

While it can be tempting to brush these expenses off as too infrequent to account for, it only takes one overdraft fee on your checking account to realize why it's so important to be prepared.

Everyone spends money differently, but Sethi offers a general "conscious spending plan" that most people can use as a starting point by breaking down spending into four categories:

  • Fixed costs such as rent and utilities (50% to 60%)
  • Investments such as a Roth IRA or 401(k) plan (10%)
  • Guilt-free spending for dining out, drinking, the movies, or clothes (20% to 35%)
  • Savings goals for a house down payment, vacation, gifts, or wedding (5% to 10%)

To implement this spending plan, he recommends setting up a checking account and multiple sub-savings accounts. Fixed costs and guilt-free spending will come from your checking account, and contributions to your retirement accounts should come straight from your paycheck. As for savings goals, use sub-savings accounts in order to save for specific purchases. For more on setting up and linking your accounts, and using automatic transfers to manage your money, take a look at this flowchart.

Include known, irregular expenses in "savings goals." "Under 'Savings Goals,' you allocate money toward goals where you have a general idea of how much it will cost," explains Sethi. "It doesn't have to be exact, but try to get a rough ballpark figure and then save every month toward that goal." He gives the example of saving for Christmas gifts: If you know gifts will cost you about $500, start setting aside $42 each month in January so you're fully prepared come December.

Include unknown, surprise expenses in "fixed costs." His rule of thumb is to add 15% to your estimate of your fixed costs to cover the surprise expenses. It's helpful to start setting aside $50 each month for the unknown costs. "You'll soon realize that this cartoonishly low figure [$50/month] is not enough," Sethi writes."But with some time, you'll have a better idea of what the figure should actually be and can change the amount accordingly ... After about a year or two (remember, think long term), you'll have a very accurate understanding of how to project. The beginning is the hard part, but it only gets easier."

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How to make sure you can always afford the expenses everyone forgets about

SKIP THE GYM

Gym or yoga studio memberships can become insanely costly. Giving up the expense, though, doesn’t mean you have to give up your workout routine. Check out FitnessBlender.com for workouts that you can do at home via YouTube.

(Photo: Getty)

GO ALL NATURAL

Many people spend a ton of money on personal care. Although getting manicures, pedicures, massages and haircuts can be a relaxing way to feel pampered, these things are sucking up money that could be spent on travel. Besides, when you are backpacking through South America or sleeping in European hostels, you won’t have access to all of your usual comforts. Why not stop now?

(Photo: Getty)

COOK AT HOME

How about embracing cooking as a new hobby? You will simultaneously be eating healthier, saving money on take-out and maybe even exercising your creative side. Following food blogs is a great, inexpensive way to find recipes and inspiration. One of my favorites, BrokeAssGourmet.com, factors cost into the equation too.

(Photo: Getty)
FOREGO SUBSCRIPTIONS

Services like Netflix, Amazon Prime, HBO and others end up tacking extra costs onto your monthly bills. Even Kindle, while it may be convenient for when you are traveling, can make buying books and apps all too easy. Consider using your local library to check out books as well as DVDs. Most offer an extensive collection that will help you save over the course of the year.

(Photo: Getty)

PICK UP AN EXTRA SHIFT

If it seems impossible for you to give up some things, or if you’re still in need of extra cash, look for a job where you can make some money without a huge commitment. Babysitting and nanny services connect caretakers with clients and aren’t just for people looking for full-timework. Catering companies are another great option since they always need servers and usually schedule staff on a week-to-week basis.

(Photo: Getty)

BUDGET WITH MINT

No, this Mint won’t print more money for you to spend on a trip to Bali, but it will help you keep track of your spending. The app allows you to create a budget and set specific savings goals, making it easier to hold yourself accountable for saving that extra cash.

(Photo: Getty)

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