Car repairs, broken boilers and parking tickets can all strike at any time, and if you don’t have a safety net in place, you’ll have to think about how to cover these unexpected costs before they cause further financial problems, such as mortgage and rent arrears.
Recent research from prepaid card providers, icount, found that over 30% of Brits list unexpected bills as their top reason for getting into mortgage arrears. This is an alarming statistic as getting into significant arrears with your landlord or mortgage lender could mean that you lose your home and possessions.
If you struggle with unexpected bills from time to time, there are a few steps you can take to ensure that these don’t worsen your financial problems. Icount are offering their top tips to help you manage your finances so that you’re prepared for any financial curveballs that come your way.
1. Build up a rainy day fund
One of the best ways to prepare for unexpected costs is by building up a rainy day fund. This will help you to pay for cover the costs of unexpected bills, however, the additional funds will also come in handy if you lose your job.
You don’t need to save up large sums of money all in one go, simply start saving whatever you can afford without sacrificing elsewhere. If money’s tight, you could start putting your spare change to one side and deposit it into a savings account at the end of each month.
If you’ve got more money to spare, you could set up a regular standing order to a high-interest savings account, so that your rainy day fund builds up over time.
Note: You should not save if you have debts to pay off. Instead, use your spare cash to pay off any loans or credit cards, as this will prevent interest costs from building up. Once you’ve paid your debts off you can start saving.
2. Identify where you can cut back
Even though you may not realise it, there are often a few areas where you can cut back on your day-to-day spending, so that you’re better prepared for life’s little financial emergencies.
Cutting back on spending is all about identifying dangerous habits that are harming your financial, and sometimes physical health. Smoking, unused gym memberships and daily coffee shop beverages are some of the main guilty parties when it comes to unnecessary spending.
Once you’ve cut out these needless expenses, you’ll free up more money to help you with any unexpected bills.
3. Budget your monthly spending
Creating a budget and sticking to it is essential for preventing unexpected bills from causing further financial problems. This allows you to see exactly where your money is going and coming from, therefore, you’ll be able to see if you’re well prepared for any financial hurdles that may come your way.
If you’re struggling to stick to your budget, a prepaid card can help you to restrict your spending. You can only spend what you load onto the card, and as a result you’ll be forced to stick to your outlined budget.
4. Consider switching to public transport
If you find that your vehicle is causing more financial harm than good, it might be a good idea to consider switching to public transport. Cars and vans can come with a lot of maintenance and upkeep costs that can strike at any time. If you switch to public transport such as the bus, tube or tram, you won’t have to worry about these additional costs and you can budget for your monthly transport ticket instead.
Of course, this won’t be a practical option for everyone, however, it’s an option to consider if you find yourself shelling out for car repairs regularly.
5. Borrow from family and friends
Family and friends can provide moral support when you need it the most. If you’re in need of a helping hand with your finances, they should be your first port of call if you can’t cover the costs yourself, or if you have existing debts to pay off.
Family and friends are likely to be more understanding when it comes to repayment, and they can offer you a more manageable interest rate than you would get from a loan or credit card lender.
Make sure to outline a repayment plan so that your friend or family member knows when they will get their money back. This will help you to protect your relationship and avoid problems further down the line.
Whilst an unexpected bill might seem like a minor problem on the surface, if dealt with incorrectly you could be faced with serious financial problems in the future. Use the tips above and speak to impartial experts such as the Money Advice Service to get help with your finances.