Chances are you know how much you spend each month on essentials such as housing, transportation and food. You may even budget a certain amount for variable expenses such as clothing and entertainment.
But what happens when you’re hit with high-ticket emergencies that blow a giant hole in your budget? Here are some common surprise expenses, what you can roughly expect to pay and the common sense steps you can take to prepare as best you can.
1. Serious illness or injury
When you or someone you love experiences a serious illness or injury, you may think: “We have health insurance, so we’re covered, right?”
That depends on your insurance plan. Many health insurance plans require policyholders to share costs in the form of deductibles, copayments and coinsurance. According to HealthCare.gov, the annual out-of-pocket limit for a Marketplace plan is $7,350 for an individual plan and $14,700 for a family plan. This is on top of your monthly premiums. Once you reach your limit, your plan pays 100% of additional costs of covered benefits.
In order to plan for your maximum financial exposure, make sure you know your out-of-pocket limit. Some insurance companies offer plans with lower limits. And check out extended insurance plans that are available to NEA members for daily cash benefits during hospitalization and recovery care.
Also consider the potential for lost wages. The Council for Disability Awareness says your chances of being unable to work because of illness or injury are 1 in 4. Because of this risk, NEA offers members access to an income protection insurance plan to make sure you get “paid” during a short- or long-term disability.
2. Major home repairs or replacements
No doubt about it, home repair expenses can hit you like a ton of bricks—even if you don’t live in a masonry house! Virginia-based teacher Teresa Chiffons and her husband got slammed with a whopping $7,500 in unexpected home repairs. “Our furnace needed replacing last winter and that cost almost $5,000. We had to rely on special financing through Home Depot, which we are still paying off,” Teresa explains.
Just a few months later the electrical panel died, adding another $2,500 to the tab. “There went the savings we were building to replace our old car,” she says.
Unfortunately, these kinds of supersized bills are not unusual. Consider these national averages for common projects as reported by HomeAdvisor.com:
- $4,745 Install windows
- $6,626 Replace roof
- $1,134 New plumbing pipes
- $1,065 Install a sump pump
- $5,233 New air conditioning unit
When confronted with major, or even minor, home repair expenses, the first thing you should do is vet the price quotes you are receiving. One helpful source is HomeAdvisor.com’s online TrueCost tool, which provides average pricing nationwide for more than 300 types of projects. You can drill down to see average rates for your specific zip code since prices can vary quite a bit in different parts of the country.
For payment, your best bet is to tap your emergency savings fund. But if you need to replace a worn-out appliance, you have another reasonable option: Try shopping around for a retailer offering zero- or low-interest financing so you can pay it off over time without any interest.
Failing that, consider tapping into your home’s equity by establishing a home equity line of credit (or HELOC). Generally, it’s not a good idea to leverage home equity to cover minor or discretionary expenses. But relying on a HELOC for high-ticket home repairs (such as replacing a decaying roof or deck) makes a certain amount of financial sense when you consider that those projects will maintain or increase your home’s resale value.
3. Pet emergencies
You may be able to accommodate the regular expenses of owning a pet. But would you be prepared to shell out thousands of dollars if your dog or cat needed emergency surgery? According to Nationwide insurance company, here are typical costs for some common emergency procedures:
- $1,846 Bladder stone removal (cat)
- $3,289 Ruptured knee ligament (dog)
- $7,000 Shattered leg orthopedic surgery (dog)
"Diagnostic procedures alone can cost between $1,000 and $2,000," says Baton Rouge, LA veterinarian Carrie Schultz. Her own cat had to spend a weekend in intensive care and the bill was about $2,000.
This is another reason to build up a household emergency savings fund. If you have trouble affording pet bills, try to work out a payment plan with the vet or clinic.
Buying a pet insurance policy can offer you some peace of mind, especially if you don’t expect you will have savings on hand should an emergency occur. Fortunately, NEA membership does offer access to affordable coverage for pets.
4. Dental and vision care
Dental or vision care may seem like discretionary expenses until you’re in pain or your glasses break. Suddenly, you have little choice but to spend hundreds of dollars. According to FAIR Health, a nonprofit organization that collects health care cost data, the average cost nationwide of a root canal is $1,111 and the cost of the crown that finishes the procedure will be another $1,300. Like all medical costs, the price you pay will depend on where you live.
While most people hesitate to comparison shop for dentists, it can’t hurt to have an idea of what fair rates for common services are in your area. The FAIR Health Consumer Cost Lookup tool provides estimates for dental services (and medical services) based on your location.
There are plenty of choices when it comes to discount eye exams and eyeglasses. But the cost can still run upwards of several hundred dollars, especially if you need special lenses for multiple prescriptions.
Insurance coverage for dental and vision care can be extremely helpful. Many large employer plans include vision and dental insurance. But Original Medicare and Medigap plans do not (although, many Medicare Advantage Plan include vision and dental coverage). If you currently lack coverage, or your existing coverage is skimpy, consider checking out the comprehensive plans offered exclusively to NEA members.
Some expenses—such as car repairs—are not exactly unexpected, but their unpredictability can make them hard to manage. Plus, many of us worry about being overcharged.
The good news is that many online resources exist to arm you with information. For example, CostHelper.com provides pricing data on national averages for 29 car repairs—such as $2,324 for an auto transmission replacement, $736 for a timing belt package and $688 for a radiator replacement.
RepairPal.com also lists national averages for a range of common auto repairs, and it has a nifty calculator that customizes the results for your make, model, year and zip code.
In terms of managing these expenses, one option is to purchase an extended warranty for auto repairs. Here are some tips for finding the right one for you.
6. Unexpected travel
Sometimes, an unexpected trip is good news. Like when your sister announces she and her fiancé are planning a lavish destination wedding. You’re invited, but the happy event is in two weeks! A last-minute ticket, hotel and a new outfit—could run upwards of $2,000.
Other times, the news is terrible. A death in the family means you need to get there quickly, no matter the cost. You can forget about discounted “bereavement” fares; most airlines have stopped offering them. And even when you can get them, the discounts are only offered on full-price tickets, which can still be a significant sum.
Your best bet may be to explore various last-minute travel sites such as Kayak.com or HotelTonight.com. And don’t forget to check the NEA Travel Program for special rates on flights, rental cars, hotels and more.
Be prepared with a stash of cash
Ultimately, the best way to prepare for unexpected expenses is with a separate emergency savings account. Build up your account over time so you can continue to save for retirement and pay off your debts. Use the resources cited in this article to take a stab at the most likely emergencies you may face and what they could cost to give yourself a goal for how much to save.
Where should you stash your cash? Preferably a bank savings or money market account to keep your principal safe and allow easy access. Check out the NEA Online Savings Program offered through Discover Bank. There are no fees or minimum balances and Discover has been consistently ranked among the top 10 best savings rates by MoneyRates.com.