Dealing With Unexpected Expenses

guy working on truck

Independent owner-operators have an enviable life in many ways, not least of which is being your own boss. But without the stability of regular paycheck it’s harder to be ready financially for the unexpected. And when you own your own truck, “the unexpected” can mean tens of thousands of dollars in repair costs and lost revenue.

And then there’s the expenses racked up thanks to severe weather or an accident. A slump in demand for your services takes a further toll on revenue. There’s no surefire way to prevent any of these crises from happening, but you can reduce the stress, the sleepless nights and the strain on your marriage by being prepared.

Stamp Out Debt

Eliminating as much debt as possible is your first step. Credit card debt is the worst. Interest rates on this kind of debt can go above 30%, much higher than for other kinds of secured debt, like truck and home loans. With such a high rate, paying down credit card debt is that much harder. As the interest compounds, you’re paying more and more interest and less and less of the principal.

Carrying debt on credit cards “keeps you poor,” according to consumer expert Clark Howard. With the high interest rate, you’re paying that much more for everything you buy on the card. It also siphons off cash that could go into savings. When an unexpected expense arrives, you have fewer resources to fall back on and are forced to put the charge on a credit card, perpetuating the vicious cycle of charging, delaying payment and accumulating debt that compounds at 30% per year.

Build Three Different Funds

Most people can get by with an emergency fund to cover three to six months of living expenses, but when your work requires a tool as expensive as a truck, you really need three funds: an emergency fund to cover motel and rental car in case you’re stranded by weather, breakdown or an accident; a truck fund to take care of unexpected repairs; and an income reserve fund to live off in case you have to endure a dry spell in your business.

Establish a goal for each fund and begin channeling any surplus you can spare to these funds, starting with the emergency fund. Research what it would cost to rent a car from the farthest point in your range and return it in your hometown. Overdrive magazine pegs the cost of maintaining a four-year-old truck at 12 cents per mile to give you an idea what to shoot for with your truck fund. Three months’ worth of living expenses is a good rule of thumb for your income reserve fund.

Considering that severe weather emergencies come with power outages that could make your credit card useless, keep a reasonable amount of cash on hand at all times. Also, make sure your credit card’s limit is high enough to cover expenses for getting home with all of your belongings in case you’re in an accident.

Finding the Funds to Do It

According to Mint.com, it’s more about finding the discipline to do it. Most people look at their checking account and conclude they can’t afford to save, but reducing expenditures and making saving a non-negotiable expense can make the funds mysteriously appear.

Being honest with yourself about the difference between wants and needs is key. Smartphones, cable TV, dinners out – anything beyond food, shelter and basic clothing is a want. Financial experts recommend you establish a goal for monthly savings and fulfill that before spending anything on wants.