4 Ways to Plan for Unexpected Expenses

A couple frown together as they look at a document on the office table.

If you suddenly had to shell out cash for an unexpected expense, how would you cover the cost? As of 2021, 32% of Americans said they might struggle to pay for an unexpected expense of more than $400, according to the Federal Reserve.

Whether it's for emergency medical care, a vet bill, a car repair or something else you never saw coming, not being able to foot the bill for an unexpected expense can make an already stressful situation even more challenging.

How to Plan for Unexpected Expenses

While you won't always be able to predict when you'll need extra cash on the fly, it's safe to assume that something will pop up. A little planning goes a long way, however, and there are ways you can prepare your finances for the next time you're confronted with a surprise cost. Here are a few ideas.

1. Create an Emergency Fund

Having an emergency fund can be a great way to keep cash at the ready for an unexpected expense. Even if you're just able to set aside a small amount, this can help ease your mind if you need access to money right away.

To prevent yourself from being tempted to spend your emergency fund, it can be a good idea to keep the cash in a separate savings account. Try to accumulate at least three to six months' worth of living expenses, if you can.

2. Budget for Unexpected Expenses

A monthly budget can help you track and plan out core expenses, such as rent, groceries and gas. But you can also use your budget to figure how much money you might be able to set aside in an emergency fund.

Instead of just adding cash to your emergency savings account whenever you have extra money—like when you get a bonus or a tax refund—you can use your budget to plan a set amount to add to your emergency savings.

Whether it's $10 a week or $100 a month, taking a disciplined approach to saving up for unexpected expenses can help your savings grow. There are a few types of budgets that can help you get started, such as the 50/30/20 budget and zero-based budgeting.

3. Keep Your Credit Utilization Low

While using credit cards to cover an emergency may not be your top choice—especially if you're not sure you can pay off the balance without incurring interest—using a credit for emergencies can help in a pinch.

If you plan to keep your credit cards available as an option to cover unexpected expenses, it's a good idea to keep your overall credit utilization low.

Not only does this free up the available credit line on your cards so that you can use them in an emergency, but it's also a good practice in general to help keep your credit score in good shape.

4. Improve Your Credit Score

Improving your credit score can help make it easier to qualify for additional credit and also keep interest rates lower on loans and credit cards.

If you were to have an emergency and needed to get a credit card, such as a 0% introductory APR credit card or medical credit card, a strong credit score could make this easier. It may also help you qualify for a personal loan, if you end up needing more cash to cover a bigger unexpected expense.

How to Pay for Unexpected Expenses

Because unexpected expenses are just that—unexpected—even the best-laid plans still may not be enough for a major emergency. If you get stuck and need cash in a bind, here a few ideas to help cover the cost:

  • Tap into your emergency fund. If you have enough cash on hand in your emergency fund, you can use some or all of it. That's what it's there for! Just remember to replenish the account as soon as you can so you're covered for your next emergency.
  • Use a credit card. Using a credit card can help cover unexpected expenses, but try and pay off the balance as soon as possible so you don't rack up interest charges and get into more debt.
  • Borrow cash from family or friends. If you're able to, ask your family or friends for a loan. If you do borrow cash to cover an expense, remember to pay them back when you're able to. And you may even want to consider drafting up a contract so that there are no misunderstandings.
  • Ask for an advance at work. Depending on where you work, you may be able to get a cash advance on your paycheck. Or, you may be able to use an early payday app to get a small amount of your next paycheck early.
  • Get a personal loan. A personal loan may be able to give you the cash you need to cover a bigger unexpected expense. But don't forget to factor in the overall cost of the loan, including interest, when deciding if a loan is the best option for you.
  • Pick up a short-term side gig. Finding short-term work you can do with quick turnaround time, such as temporarily renting out your home with a home-sharing service, driving grocery or food deliveries or babysitting, could help you fund the emergency expense without tapping into your savings or credit.

The Bottom Line

If you keep your financial house in order, an unexpected expense might not have to make or break your budget—or push you into debt. Try mixing and matching some of these strategies to find what works best for your financial situation.

And don't forget to keep regular tabs on your credit score too. You can check your credit score for free with Experian.