Friday, September 22, 2023

A $1,500 Mistake- How We Deal With unexpected Expenses

Back in November when I was taking a break from blogging, we were blindsided by a massive, completely unexpected bill. If you’ve been around here much, you know that Mike and I faithfully budget each month and are pretty on-top-of our finances. So how could we get surprised by a $1,500 bill?

I’m finally ready to talk about it.

If you look back at our September 2022 budget update, you’ll see that our water bill was surprisingly high. To make it easy, I’ll paste the excerpt from that budget update below.

Water – $260 We got a shocking water bill of $445. We had set aside $185 in August and had to budget the remainder in September (this bill comes every other month). Last weekend Mike discovered the reason. Most of our garden terraces are on timers, but the orchard terraces weren’t on timers yet. We water the fruit trees overnight, once a month. He had turned the water on the orchard and forgotten to turn it off the next morning, so the drip system on the trees was running for an entire month. Now looking up on the hill, standing out against the general landscape colored by drought, I see the vibrant green weeds growing through the woodchips around our young fruit trees. Sadly, our next bill that comes in November is also going to reflect part of this expensive oversight.

The thing about water bills, at least where we live, is they aren’t a direct reflection of water used during the dates of the bill because we don’t have smart meters. About half of the meters in our county use technology that allows meters to be read automatically. The other half of the meters, like ours, are not easily accessed and read by the water company on the exact day of your bill. The meters are actually read by a person– a meter reader.  The meter reader cannot read everyone’s meters on the last day of the billing cycle, so even though your bill says it covers a certain time period, what your actually paying for is the water used between the last two times the meter was read.

So when we got the “shocking” $445 water bill in September and then found the orchard water running full tilt, we thought we had caught and solved the problem before it would have very much effect on our next bill. I didn’t think about it too much, but I did keep my eye out for the next bill.

Expecting a slightly elevated bill of maybe $200 (our November bill the previous year was $160) to a worst case scenario of $300, I nearly had a heart attack when I opened the email that showed November’s bill as $1,556!

Not thinking about the meter reader situation explained above, I was sure there was some other problem besides leaving the orchard water running for a month or so straight.

I thought back to the trenching we had done recently to bring water over to the garden. Instead of hoses going from the house up to the terraced hillside garden, we now have spigots with good pressure on every terrace. Did the workers somehow make a leak underground somewhere? This whole project already left a bad taste in my mouth because the cost came in much higher than expected! You can imagine my frustration now as I suspected that they also caused us to have a $1,500 water bill.

Mike was pretty sure that we had already discovered the sole culprit– the orchard water that was left running for a month. He explained that the meter must have been read just after the beginning of the watering oversight (September bill) and then the next meter reading included the majority of the expensive mistake (November bill)

I wasn’t convinced.

Mostly, I was afraid of waiting two months for our next bill and having another insane bill to face. I felt sick to my stomach whenever I thought about it. I hadn’t felt this make-you-ill financial stress in years.

For some perspective, In 2021, we paid $950 total for water, for the entire year. This one bill was more than 150% of what we spent for the entire previous year.

To test Mike’s hypothesis that there was no other leak (that the problem had been solved months ago by turning off the orchard water), Mike took a picture of the water meter and we didn’t use water for 12 hours. We were sleeping for the majority of the experiment, so it wasn’t very hard to go without water. I told all the kids what we were doing, then put a sock on every faucet, taped the handle on every toilet, tape on the washer knobs, and put bags over the shower heads. We were between renters in our Airbnb, so it was the perfect time to do a test like this.

The next morning Mike hiked up to the meter to find… it hadn’t changed! Hooray for no hidden underground leaks! I could now rest a little easier until the next bill.

I’m elated to report that when we got January’s bill, our bill was a mere $120. I’ve never been so happy about a bill in my life!

So what’s the takeaway?

For us, it’s definitely to get all of our water on timers and check them regularly to make sure nothing gets left on.

But there’s a big takeaway for you too. What would you do (or what have you done) if you suddenly had an unexpected expense of $1,500 that you didn’t budget for?

How we cover unexpected expenses

I didn’t talk about how we covered the bill. While we absolutely did not want to spend $1,500 on water, I’m grateful that we had money to move around to cover the bill.

It has not always been so easy.

We have a three-part plan for covering unexpected expenses. Even when we were on a very tight budget as we paid off six figures of student loan debt we followed this same plan for dealing with unexpected expenses. Here is our plan for handling unexpected expenses.

1- Change how our money is allocated

At any time in the month we can change how our money is assigned. We can take funds from one category and move it to another category. We do this every month in small ways. If we want to spend more on clothes, we might choose to move some funds from our food category to the clothing category. Moving money around is a normal part of having a flexible budget. It’s hard to break a flexible budget.

We always try to have a big financial goal that we’re working toward, like paying off debt or saving up for something. Normally we funnel all of our “extra” funds to our goal. When we set our budget at the beginning of the month, anything that is left after funding all of our normal budget categories will go toward our big goal. At the end of the month we zero out most budget categories and put all of that toward our goal (rather than rolling it over to the next month).

Covering our $1,500 unexpected bill was a matter of moving money around. Our current goal is paying for solar, so all of our extra money goes toward this goal each month. Instead of putting extra money toward solar that month, we paid the minimum so that we would have money for the water bill.

2- Split the cost with next month’s budget

Being able to split a cost with the next month’s budget is a benefit of being a month ahead. We budget using last month’s income, so the money that has come in this month is just sitting there waiting for next month to start. We have the ability to split the cost of a bill over two months because we have the cash for the second month available.

We used this strategy most recently with the garden trenching project I mentioned earlier. The bill was more than we could have handled by just changing how our money that month was allocated. We had to budget two months tightly and split the bill over those two months. Since the funds were actually in our bank account for the two months (because we are a month ahead), we had the cash to pay for the bill.

3- Hit up the emergency fund

Our last resort (besides debt) is using our emergency fund. There have been very few occasions where we needed to use our emergency fund and that’s the way we like to keep it. Having worked hard to build up an emergency fund, we want to do all that we can to avoid using it. It is comforting to have an emergency fund, but for us the best way to use our emergency fund is to not use our emergency fund.

On the few occasions that we have used or “borrowed from” our emergency fund, we have made paying it back quickly a priority.

We usually manage unexpected expenses in the first step of this three-part plan.  When we need to move to step two, like we did last November, it’s a huge relief to have the additional flexibility. The handful of times we’ve need to resort to step 3 have been actual budget savers.  Over the last ten years we’ve been fortunate to fit every unplanned expense, from small overspending to a few thousand in unplanned costs, into our three-part plan. It has helped us keep our budget flexible and robust and saved us a lot of stress and headache.

I hope it was helpful to see how our family handles unplanned expenses. If you don’t have a plan for dealing with those frustrating expenses that pop up, now is the time to make one so they don’t completely derail your finances.

You can do this!

How about you?

What unexpected expenses have you been hit with?

Do you have a general plan for handling unexpected expenses in your budget?

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