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Planned and unplanned expenses

Learn about preparing for planned and unplanned expenses.
Saving money can be hard, but it's one of the most important things you can do to ensure your financial stability. One of the first things you need to do when trying to save money is to understand the difference between planned and unplanned expenses.

Planned and unplanned expenses

Planned expenses are things you know are coming, like rent, a car payment, or a phone bill. Unplanned expenses, on the other hand, are things that pop up unexpectedly—think a medical bill, car repair, or last-minute gift.
Unplanned expenses can have a catastrophic impact on people's finances. For example, if your car is the only way you can get to work, and that car breaks down, you are going to have to miss work or pay for rides to and from work until the car is fixed. If there is no money in savings for this type of expense, you are going to have to borrow money and possibly put yourself in debt. Your income may suffer if you end up missing work, and your budget will now have additional expenses in it. Medical expenses are another type of unplanned expense that can also affect the income portion of your finances. If you are ill, your ability to work will also be affected, as well as your income.
Car, broken down on the side of the road.
Car breaking down is a common unplanned expense. Image credit: "Pwned" on Flickr, CC BY-NC 2.0.

Emergency fund

While it is impossible to predict if any of these events will happen in the future, it is important to be prepared, just in case. Best way to do this is to start an emergency fund. Emergency fund is a savings account specifically set aside for unexpected expenses. The goal is to have enough money in the fund to cover costs if something unexpected comes up. Many experts recommend having at least three to six months' worth of expenses saved up in an emergency fund.

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