The perils of unexpected recurring expenses

What is the worst that can happen to us from a financial standpoint?

  • Life insurance will take care of our family upon our death provided, it is adequate and kept in force – check your cover here.
  • Health insurance will take of a family member’s hospitalization provided, it is enhanced often enough to keep pace with inflation.
  • A large enough emergency fund should handle any sudden expense from a car breakdown to non-medical expenses during hospitalisation.
  • Accident insurance are available for disability management .. to a certain extent (most covers are too low)
  • Critical illness insurance is available, in principle, for CI management to a certain extent (complex policy wordings plus typically low cover)
  • We have a car insurance, two-wheeler insurance, home insurance etc.
  • We invest each month for our long term financial goals and save for our short term goals.
  • We stay off bad debt, understand the role of inflation on a home loan EMI and keep it manageable.
  • Each month, our salary accounts for monthly expenses, EMI, investments, savings and a small contribution to the emergency fund.

So what is the worst that can happen from a financial standpoint. If most of the above points are covered in one way or the other, a person would in charge of his/her finances.

What is the worst that can happen to topple such an individual’s life?

When it comes to emergency expenses, a scenario keeps recurring in my mind.

Shops that stock expensive crystalware have a simple policy – “good to touch, yours if dropped!”.

So if I accidentally drop crystalware I will feel terrible because it is an unexpected and unnecessary expense. A car breakdown is an unexpected (not really!) but a necessary emergency.

While what is necessary/unnecessary is subjective (how do you classify a trekking accident?), the nature of the expense is usually objective.

If we drop crystalware I pay (a large!) one-time fee.

If we have an accident, get hospitalized and take a few months to recover, most of the hospitalization expenses will be paid by the insurer (either immediately or later).

Recovery at home represents unexpected recurring expenses.  This is the worse that can happen from a financial standpoint.

unexpected recurring expenses
Photo Credit: Tony Hisgett (Flickr)

Imagine this scenario.

A couple utilises 30% of their take-home pay for monthly expenses. Another 30% is allocated for investments towards their long term goals, 30% towards home loan EMI and the rest 10% towards miscellaneous expenses or is added to the emergency fund. They have enough life and health insurance cover.

Every paisa earned is accounted for and budgeted. Sounds perfect!

How will this couple handle unexpected recurring expenses?

There is a limit to how much monthly expenses can be reduced.

Reducing the EMI is pretty much impossible.

The only option is to utilize the ‘left-over’ 10% and if the expenses are huge, reduce their investments.

I can think of no other way to handle this issue.

Unexpected one-time expenses leave a big hole in the pocket. The hole will disappear soon.

Unexpected recurring expenses is like an active mine – the hole remains fresh month after month.

What is the way out?

Nothing can be done after the recurring expense is incurred.

The only way out is to start investing early, aware of the possibility of such expenses latter in life.

This is the only reason I have managed to hold my head above water as I manage unexpected recurring expenses after my mom fell and broke her thigh bone: Cashless Mediclaim: A Second Person Narrative

A few weeks ago as I sat down looking at my mother in a hospital bed recovering from surgery the long term implications of her fracture were becoming clear to me.

She would be confined to a bed (if not bed-ridded) for at least a couple of weeks more. She will need paid-assistance in her day-to-day activities. She will need to be given physiotherapy. She would need diapers, wipes, gloves etc. There would also be a few miscellaneous expenses.

All this implies an outgo of close to Rs. 1000 a day. I have no other option, but to decrease my retirement investments and stop investing for my sons marriage.

Thankfully it is not as bad as it sounds.  I am already investing way ahead of my retirement investment schedule (monthly investments that increase each year at some rate):  The year-end personal financial audit

I am thankful that I will be able to continue investing for my sons education as per schedule.

A decrease in retirement investments means a delay in financial freedom by at least 5 years or so.  I am not too worried about that as I am an academic, and I love my job.

What if the same happens to someone in a corporate job? A job that the person hates?

Install Financial Freedom App! (Google Play Store)

Install Freefincal Retirement Planner App! (Google Play Store)

book-footer

Buy our New Book!

You Can Be Rich With Goal-based Investing A book by  P V Subramanyam (subramoney.com) & M Pattabiraman. Hard bound. Price: Rs. 399/- and Kindle Rs. 349/-. Read more about the book and pre-order now!
Practical advice + calculators for you to develop personalised investment solutions

Thank you for reading. You may also like

About Freefincal

Freefincal has open-source, comprehensive Excel spreadsheets, tools, analysis and unbiased, conflict of interest-free commentary on different aspects of personal finance and investing. If you find the content useful, please consider supporting us by (1) sharing our articles and (2) disabling ad-blockers for our site if you are using one. We do not accept sponsored posts, links or guest posts request from content writers and agencies.

Blog Comment Policy

Your thoughts are vital to the health of this blog and are the driving force behind the analysis and calculators that you see here. We welcome criticism and differing opinions. I will do my very best to respond to all comments asap. Please do not include hyperlinks or email ids in the comment body. Such comments will be moderated and I reserve the right to delete  the entire comment or remove the links before approving them.

18 thoughts on “The perils of unexpected recurring expenses

  1. bharat shah

    really thought provoking though too much worrying man you are! apart financial believe there is some element running world (or ruining?!) world. one way this is luxury one can think so much , having resources at his side, but not for other millions! for me, if one can manage some or all of nine you stated first, is enough , and leave it other to the unknown element! excuse me if you consider something uncalled for.

    Reply
    1. pattu

      I agree with you. I do worry too much! I also agree that one cannot plan for such events. My point is if they occur, investments will be affected. So start early. You never know what factor will stop/interrupt your investments

      Reply
  2. bharat shah

    really thought provoking though too much worrying man you are! apart financial believe there is some element running world (or ruining?!) world. one way this is luxury one can think so much , having resources at his side, but not for other millions! for me, if one can manage some or all of nine you stated first, is enough , and leave it other to the unknown element! excuse me if you consider something uncalled for.

    Reply
    1. pattu

      I agree with you. I do worry too much! I also agree that one cannot plan for such events. My point is if they occur, investments will be affected. So start early. You never know what factor will stop/interrupt your investments

      Reply
  3. IamNoSpecial

    Pattu - As I told you recently, along with your perfection and accuracy in excel based calculators, you are also providing us with useful posts to think upon and act ... thank you ....
    So the take away could be the number that we think for emergency fund may or may not be enough... In my post of emergency fund, I had mentioned your line: thumb rule sucks.. get your own number..... So in addition to this number, we may also have to factor above things and as and when possible just keep on accumulating emergency funds along with our other allocations.....
    What say?

    Thanks,
    Viren

    Reply
    1. pattu

      Viren, I am not sure if anyone can plan for such expenses. Recurring cashflow entries previously unaccounted implies the whole financial plan has to be relooked and suitable adjustments made. This is what I have done if you notice the last para. That is life 🙁

      Reply
  4. IamNoSpecial

    Pattu - As I told you recently, along with your perfection and accuracy in excel based calculators, you are also providing us with useful posts to think upon and act ... thank you ....
    So the take away could be the number that we think for emergency fund may or may not be enough... In my post of emergency fund, I had mentioned your line: thumb rule sucks.. get your own number..... So in addition to this number, we may also have to factor above things and as and when possible just keep on accumulating emergency funds along with our other allocations.....
    What say?

    Thanks,
    Viren

    Reply
    1. pattu

      Viren, I am not sure if anyone can plan for such expenses. Recurring cashflow entries previously unaccounted implies the whole financial plan has to be relooked and suitable adjustments made. This is what I have done if you notice the last para. That is life 🙁

      Reply
  5. sunderarajan (@ndpsr)

    mr. bharat, i can understand your anguish. but then we talk of financial planning, we have to provide for all exigencies. scenario of ``unexpected recurring expenditure'' is also something one should be prepared for.

    Reply
  6. sunderarajan (@ndpsr)

    mr. bharat, i can understand your anguish. but then we talk of financial planning, we have to provide for all exigencies. scenario of ``unexpected recurring expenditure'' is also something one should be prepared for.

    Reply
  7. IamNoSpecial

    Yes, agreed on the part where we cannot plan anything on such things.... but I was just thinking that over a period of time if we keep on adding emergency funds (in a liquid or arbitrage fund), we can minimize the loss....
    I know the next point would be - had these 'extra' money parked in other avenues instead of emergency fund it can give better returns..... but in this case, liquidity may be an issue....
    so we come back to same point, can we plan for such issues? May be not... but we can try to minimize the effect.....

    Reply
    1. pattu

      Viren, you are missing the point that it as unexpected 'recurring' expenditure. Emergency fund can and should only handle unexpected one time expenses. If you keep utilising emergency fund for recurring expenditure what will you do when there is a one-time expense down the line along with the recurring expense?

      Reply
  8. IamNoSpecial

    Yes, agreed on the part where we cannot plan anything on such things.... but I was just thinking that over a period of time if we keep on adding emergency funds (in a liquid or arbitrage fund), we can minimize the loss....
    I know the next point would be - had these 'extra' money parked in other avenues instead of emergency fund it can give better returns..... but in this case, liquidity may be an issue....
    so we come back to same point, can we plan for such issues? May be not... but we can try to minimize the effect.....

    Reply
    1. pattu

      Viren, you are missing the point that it as unexpected 'recurring' expenditure. Emergency fund can and should only handle unexpected one time expenses. If you keep utilising emergency fund for recurring expenditure what will you do when there is a one-time expense down the line along with the recurring expense?

      Reply
  9. IamNoSpecial

    Oops... exactly what I missed..... the recurring thing and insufficient balance in emergency fund with my approach........I agree... sorry for the short sighted comments 🙁

    Reply
  10. IamNoSpecial

    Oops... exactly what I missed..... the recurring thing and insufficient balance in emergency fund with my approach........I agree... sorry for the short sighted comments 🙁

    Reply

Do let us know what you think about the article