This is a guest post by Robert, who lives in Calgary and works as a financial adviser. He is married, has three kids and plans to retire at age 35. Robert and his wife then plan to return to school and become teachers, eventually living and working overseas.
I have an irrational fear of dentists. I told someone at work about it, and she almost gagged at the mere thought of a dentist, so I’m not alone. A few weeks ago, one of my teeth started bothering me. But because of my desire to avoid dentist offices, I ignored it. After a few days, the gum started swelling and then the side of my jaw became swollen. I couldn’t postpone it any longer.
The good news is that I found a nice (but expensive) dentist who fixed me up temporarily. The bad news was: root canal. Ugh. I took a course of anti-biotics and scheduled in the root canal for a few weeks later. The whole thing went fine, but the bill was almost $1500. This is why I’m very glad to still have some benefits through work. I was fortunate to have been offered a $1500 health spending account (for my entire family), which will all be used up paying for this root canal.
But what happens when I’m no longer working? In fact, I found out after the root canal was done that this isn’t the end of it. Now I need a crown to protect what’s left of the tooth. That’s going to set me back at least $1000 and I no longer have benefits to draw on. Not only that, but $1000 is a significant departure from my regular monthly budget of around $3500. When I’m retired and living on a fixed income, I will no longer be able to dip into excess earnings to cover unexpected expenses.
There are two possibilities to deal with unexpected expenses like this. One is to have an emergency reserve. Hopefully I won’t have a root canal each year, but last year it was a repair to my car and the year before it was repairs to my fridge. It didn’t bother me at the time, but it seems that I can always count on $1000 – $2000 worth of “unexpected” expenses. Having at least this much cash accumulating over the year in a savings account would be the best solution. Alternatively, having a line of credit available that could be paid back from monthly savings, as long as it was used for nothing but emergency would also be acceptable. If neither of these are in place, it would mean selling investments which, depending on the economic environment, is likely to permanently reduce my ability to produce monthly income.
Where do you find unexpected expenses come from? How much do you normally need in a year to cover them? Where does the money come from?