A Life Without Debt: Dealing With Unexpected Expenses

Recently we got a bit of a shocker to our budget. The washing machine, out of nowhere, decided to give up on us. I can’t say I’m totally shocked; the poor thing was thirteen years old, after all. But still, it gave no warning before deciding to conk out completely. Turns out that the motor is shot. There is no way to repair the motor so the only choices are to get a new motor or a new machine. This was certainly an unexpected expense so we had to employ all of our good decision making practices to deal with this little problem.

First, we looked into the cost of replacing the motor. That seemed to be the least expensive and wasteful route, at first. Turns out that replacing the motor costs almost as much as buying a new machine (it was about $80 less for the motor than a new, middle grade machine). Since there’s not much to a washing machine, replacing the motor would probably buy us many more years of use. However, the newer machines are about 50% more efficient than what we currently have (which was the cheap, contractor special installed by the builder). A new machine would use a lot less water and electricity. We crunched the numbers and decided that a newer machine made better overall economic sense, given that we would recoup the difference between repair and replacement with energy and water savings.

We had the money to replace the machine in savings so it was not going to be a big deal to pay for the machine, but we still wanted to make certain we got the best deal we could. Rather than rushing out to buy a new washer, I took our clothes to the laundromat for a few days while we researched models and prices. It took about a week to decide what we wanted and which retailer had the best price. When we got to the retailer, we lucked out because they had a dented washer selling for $200 less than the pristine model. The dent was on the side that faces the wall and not very big to boot, so I really didn’t care and took the $200 discount. We opted to take it home and install it ourselves, saving the delivery fee. The old one went to a local charity (they picked it up for free) that uses old appliances for vocational training.

In order to replenish our emergency fund for the next time (and there will always be a next time) we immediately reduced spending in some other budget categories like eating out and entertainment until we recouped the cost. Even though we are able to avoid debt when an unexpected expense comes up, we are quick to replace that fund so we don’t have to take on debt in the future. Too many emergencies that drain your fund without replacing what is lost leads to debt eventually.

For us, this unexpected expense was no big deal. An inconvenience, but not a budget buster. We employed all of our best decision making and savings tactics to make certain that this expense didn’t do any more damage to our emergency account than absolutely necessary. Earlier in our marriage, things like this threw us into a tizzy because we hadn’t yet build up enough of a cushion to really cover things like this. We used to sweat every unexpected expense, pulling money from one budget category to another and really juggling our books to get through without taking on debt. Sometimes, we had to put a purchase off and deal with some inconvenience until we could save the money for the item. But by making wise purchasing decisions, not buying more than we needed, deferring purchases that weren’t really necessary, and not panicking, we were always able to manage. Here’s our quick guide to dealing with unexpected expenses without incurring debt:

Always keep an emergency fund in place to cover unexpected expenses.: Otherwise, you’ll have to turn to credit. This is the single most important thing we do to deal with unexpected expenses and remain debt free and it has saved us more times than I can count.

Research the most cost effective option, taking into account not just the base price of the item, but other “hidden” costs as well such as energy costs, the likelihood of additional repairs, labor if it has to be installed, etc. Look into used items, if applicable. Crunch the numbers to determine the best approach, rather than assuming you have to buy a whole new item.

Don’t rush to buy the first thing you see: In most cases, you can get buy for a few days with alternatives or temporary repairs, giving you a chance to find the best price or negotiate a good deal. If it’s a medical expense and not a life threatening emergency, shop around with various professionals and look into smaller towns. Sometimes there is a big difference in what medical providers charge for the same services. (Example: Early in our marriage my husband had to get a root canal and other dental work. The cost his dentist quoted was $1,500. But by going to a dentist in the small town next to our larger city, he was able to get the same work done for $750, saving us a lot of budgetary pain.)

Reduce other expenses immediately until the emergency fund recovers from the expense.

Don’t panic: Most unexpected expenses are not emergencies that have to be dealt with right now. You can live without a heater or AC for a couple of days, you can cover a leaky roof with a tarp, and you can find ways to get around the use of most appliances. Unless it’s a medical emergency, you have time to find a decent deal, compare quotes, determine your needs so you don’t buy more than you need, and crunch the numbers to work in your favor.

Don’t buy more than you need.: If the washer breaks, you don’t have to get a new dryer, too. You also don’t have to buy something with all the bells and whistles if you don’t need them. Just get what you need and move on.

Think about deferring the expense until you’ve saved up enough to pay cash: Things like a leaky roof or a refrigerator have to be replaced immediately. But other things, like washers, dryers, or heating and AC units may be able to wait. You can buy a drying rack or clothesline or take your clothes to the laundromat. You can buy a space heater, use a fireplace or buy some fans to get you through the loss of climate control. You can carpool or take public transit if your car dies. It may not be the standard of living you’re accustomed to, but it will buy you time to save the money and avoid taking on debt.

It helps to think ahead: I generally keep an eye on appliance trends and prices, contractors in the area that are reputable and fairly priced, and I know what my health insurance covers at which providers and how much. I don’t spend a lot of time learning these things, they’re just things I pay attention to when I’m out and about, talking to friends who are having work done, or when insurance policies come in the mail. That way, when emergency strikes I’m better able to make decisions. I know where to go, who to talk to and what to look for to deal with the problem. It helps me keep a clear head and it prevents regrettable, rash decisions.

Sometimes, particularly for medical emergencies or things that will lead to larger damages if not dealt with immediately (like leaky roofs), you may have to simply do the best you can with limited knowledge and research time. You may not have time to search for deals and low cost providers. You may not be able to defer the expense. You may have to take what you can get quickly. It is those cases where having an emergency fund will really save your bacon. I cannot stress enough the importance of a well-funded emergency fund to deal with unexpected expenses if you want to remain debt free. That money is often the barrier between you and debt. Unexpected expenses are always annoying and something you wish you didn’t have to deal with, but they don’t have to be the catastrophic road to debt if you act carefully and wisely and keep your emergency fund full.

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9 Responses to A Life Without Debt: Dealing With Unexpected Expenses

  1. Horlic says:

    Great article. Just to pick your mind, how much should we allocate for unexpected expenses?

  2. Baker @ ManVsDebt says:

    Wow, amazingly thorough article detailing how one should handle an emergency.

    It’s very refreshing to see someone not get caught up in the credit card cycle by living debt free and planning out an emergency fund!

    Great work!

  3. Sadie says:

    @ Horlic: It depends on what you have in your life that’s likely to go wrong. For example, if you rent and your landlord takes care of things like leaky roofs, clogged pipes, and broken appliances, then you need a lot less than a homeowner who has to pay for all that. If you have one car, you need less than if you have three cars. And so on.

    What we do is this: I have a general idea of what things cost to repair/replace around here and I work off the worst case scenario. For example: I know that if the entire heat/ac system were to fail beyond repair, I’m looking at about $4,000 for replacement. I know that I’d be looking at around $3000 if every single appliance were to fail beyond repair at the same time. Cars would be about $2000 to have a new engine or transmission put in, but most repairs are less than that. And so on. I add it all up and try to keep that much in savings.

    Do I expect every single thing to break beyond repair at the same time? I really hope that never happens. Most of the time I can get by with a lot less money by repairing the item rather than replacing. But still, I like to have the worst case covered so I save toward that “doomsday.”

    I also keep extra in my savings in case of medical emergency, which is almost impossible to know what it would cost. I just try to keep enough to act as a hedge against MOST things that can go wrong.

    My advice would be to take inventory of what you have that’s likely to cause you an unexpected expense and get a general idea of what it would cost to replace or repair and then build toward that, plus extra for medical. You don’t have to have it all at once: anything you can save will act as a buffer when things go wrong. Just slowly and steadily build up until you think you could cover almost anything that might go wrong in your world.

  4. Monkey Mama says:

    Replacing a 13-year old appliance wouldn’t be an “emergency” in my eyes. I was actually surprised my your method.

    For us, we have a “mid-term savings” account that we contribute to monthly, for repairs around the house, replacing cars and appliances, etc., etc., etc. We contribute to this account monthly. As such we wouldn’t have to cut other areas to refund it. We always contribute to it.

    If we under-saved then we would resort to your method as a second line of defense (dip into the emergency fund). Though first we would lower our costs by buying used instead – before I’d dip into the emergency fund.

    I guess it leaves me curious why you wouldn’t always save for these kinds of things?

    Anyway, it amazes me how many people think because we “live on one income” that we would be screwed over if our washer broke.

    But yeah, it’s like, seriously? HAs no one heard of a savings account? Our washer did break when I was on maternity leave and we had no income. So we bought a new one with our mid-term savings. IT was 30-years-old – can’t say it was surprise.

    I did like the article!

  5. I would not call replacing an old washer an emergency. I would expect appliance repair/replacement to be in the house budget.

    (I would consider an emergency to be a sudden medical issue above normal illnesses, auto accident, fire…Things that you can’t expect to happen.)

    I see free working washers and dryers all the time on craigslist and free cycle. If one didn’t have the savings or means to get a new one, they could always go that route.

    The last time I went to a laundermat it was $2 per wash and $2 per dry PER LOAD. For a large family, who does 5 or more loads a week, your monthly laundermat bill would exceed a credit card monthly payment.

    While I believe one should avoid credit card debt, there are some times when it may be the least expensive way to go, esp if they also offer a bonus for signing up for a card (such as Sears).

  6. Diane says:

    I don’t consider replacing a washer to be an emergency either.

    When our washer died last spring, I was just about to replace the dryer because it was requiring multiple cycles to dry a load of clothes.

    The washer was actually older than the dryer, the dryer had been repaired the previous year & both were past repair.

    We bought both a washer & a dryer at Home Depot, using an offer of 0% interest for 12 months on my Home Depot account.

    I could have purchased both the washer & dryer using savings, but why give up the interest on savings when I could use their money for FREE!I knew if I needed to pay off the washer & dryer I could take the money from savings anytime to do so.

    I paid off the washer & dryer in 9 months with no interest & collected interest on my savings.

    When my son’s computer died, I did the same thing to purchase a laptop at Best Buy with 0% interest.

    I know many people don’t approve of using credit cards in this situation, but to me I’m actually saving money, as long as I’m not charging more than I could pay for.

    Using these free offers is the ONLY way I make a purchase on a credit card without paying it off when the bill arrives. It works fine for me.

  7. Stacy Adcock says:

    I consider any replacement/medical problem/job loss an emergency because the thought of going thru life having to plan to the max for those things seems exhausting! With that said, I do save for “emergencies” and all that savings goes into one account. It’s just easier to manage. I think the article make sense and I’ve wondered when the savings account is full enough. I still don’t know the answer to that when I consider adding all of my possible emergencies together. I think I’ll just keep adding to the savings (money market) account as best I can. I don’t know if I’ll ever know how much is enough.

  8. RAJEEV TIPS says:

    Very well articulated article.. thanks. I also feel that the most important thing here is to follow the thumb rule of spending less than one earns at all times without exception. Also one MUST have an emergency fund enough to see them through for 6 months as least.

  9. Meaghan says:

    Excellent advice! My family knows what it is like to have those unexpected expenses pop up…and they usually come in groups! Thanks for the post!

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