5 Expenses to Save for

big expenses

Many of us save for retirement, vacations and sometimes a little treat for ourselves — but when it comes to some expenses, we miss the mark.

A survey by Bankrate.com found that nearly four in 10 Americans don’t have enough money in their savings account to pay for unexpected expenses like car repairs or ER visits. What makes that even worse is the fact that nearly half (47%) of all Americans experienced unforeseen expenses in the previous 12 months, according to a 2014 survey by American Express — many of which they easily could have planned for. More than four in 10 Americans got hit with car-related and health-care expenses they didn’t expect, and roughly one in three with house-related expenses like repairs. Still others found themselves facing unforeseen education and insurance bills.

“I call these ‘unruly expenses’ — they seem to come out of nowhere,” says Abby Morton, a certified financial planner with SagePath Financial Planning. “If they’re not recurring monthly, they’re not on people’s radar.”

Experts say that, in general, Americans should have three to nine months of living expenses in savings that they can spend on unforeseen expenses like some of the above; if you are older and/or have dependents, you may want to be even more conservative and save 12 months of expenses, says Anthony D. Criscuolo, a certified financial planner with Palisades Hudson Financial Group in Fort Lauderdale.

But the reality is that most Americans aren’t even close to having this amount of savings — and they’re saving less than in the past. Research from the Employee Benefit Research Institute released in 2014 found that 36% of American workers have less than $1,000 in total savings and investments (up significantly from 28% last year) excluding their home and pension, and fully six in 10 have less than $25,000.

The lesson: Americans should start saving more, by putting a little bit of money away each month (how much you save each month will depend on your budget) into their savings until they have six to 12 months of income saved up, experts say. Lesley Kilcullin, a certified financial planner at Fiduciary Advisors in St. Louis, recommends putting the money in a savings account outside of your personal bank (you can look for savings account options that offer the best interest rates on a site like Bankrate.com or NerdWallet.com), so you aren’t tempted to use the money for daily expenses. Other experts say that it may even be a good idea — at least in this low-rate environment — to put that fund into stocks and bonds.

You should also save beyond this so-called emergency fund “for the large, one-time, unexpected things, like car repairs, home fixes, or health care bills,” says Criscuolo. “As a starting point, if you have insurance, you should at least save the amounts of your deductibles,” he says.

Beyond that, experts have advice on how to save for each of these common unforeseen expenses.

Car trouble

While drivers expect to shell out money for gas and routine oil changes, repair costs often surprise them. The average repair cost for a car made between 1996 and 2012 was $367.84, according to the 2013 CarMD Vehicle Health Index, though of course, some repairs cost significantly more. Wan McCormick, founder of Reliable Alliance Financial in Fairfax, Virg., says that $250 to $2,500 is a good amount to have saved each year for expenses related to unexpected car issues; if your car is older or prone to problems, you may want to save even more.


Health care

Even those who have health insurance are often surprised by how much they must pay out of pocket beyond just co-pays. While it’s impossible to predict future health care costs, it is important to have enough money in savings to fully meet your deductible (so if your deductible is $5,000 a year, you should have at least $5,000 in savings to meet that) — and more than that (maybe even thousands more) is a good idea, as there are some items that insurance simply doesn’t cover.

Timothy Hayes, the president of Landmark Financial Advisory Services in Pittsford, N.Y., says that you should consider saving using a health savings account (HSA) if offered one. Other savings options include a medical savings account (MSA), flexible spending account (FSA) and health reimbursement arrangement (HRA), which are detailed here

Home expenses

McCormick estimates that about $1,000 – $5000 is a good amount to put into your home’s emergency savings fund for unforeseen expenses, though this, of course, could be more if you have an older home that’s in need of work. You’ll want to have at least enough money saved so that you can replace a major appliance, as well as at least one other likely major repair. “For new homeowners, I highly encourage them to keep their home inspection reports handy and read them,” McCormick says. “ A good home inspection report also gives you ideas on when the major house components might expire.”

Education

While it’s true that tuition is usually the priciest thing parents pay for when it comes to education, it’s often the little things (like computers, supplies and extracurriculars) that surprise parents with their cost each year. Indeed, this year, the average family with a child in kindergarten through high school will spend nearly $670 on average on back-to-school supplies including electronics, classroom supplies and clothes. What’s more, parents often need to shell out money for extracurriculars (uniforms and other sports equipment for school sports included), says Lisa R. Hatcher, a certified financial planner at Hatcher Byles Financial Planning in Richmond; this could cost them a few hundred dollars or more. “As your child gets older, these expenses often go higher,” she says.

If you have a child in college, the unforeseen expenses could be even higher. While you likely know what tuition and room and board will be, you may also get hit with expenses like on-campus parking, sorority or fraternity fees and other extracurriculars. Will Kelly, the managing director at United Capital in Buffalo, says that these kinds of unexpected costs — which could also include travel to and from home for holidays — could add up to thousands of dollars each year.

Insurance

Anytime there is a claim on any of your insurance policies, there’s a chance rates can go up, says Kelly — which often surprises people. The good news here is that you can shop around for a lower rate or ask about raising your deductible to lower that monthly cost — though make sure you can afford the deductible — to get that cost back down. Plus, he adds, people are often caught off guard by what their insurance doesn’t cover. To prevent that surprise, Kelly recommends you go through your policy either yourself or with an agent to discuss these kinds of omissions, so you’ll know what to save for or what you should get a supplemental or different policy to cover. Still, even when you do all this, you could get hit with an expense. If that happens, Kelly recommends using your emergency fund to cover those bills.

This article originally appeared on MarketWatch.com and is reprinted by permission from Marketwatch.com, ©2014 Dow Jones & Co. Inc. All rights reserved.

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