Unavoidable Expenses and How can You Avoid Them
(Written by my husband)
Maybe you know that: You have been following the frugalist blog for several months now and have finally decided to save a part of your income and invest. A good decision. Everything looks great, too. After the rent, food, insurance and fuel for the car are paid, you still have a few hundred euros left, with which you want to save your newly opened investment portfolio. But at the end of the month comes the bad surprise: Once again, nothing is left of your income, because something unforeseen has intervened. The washing machine or the TV broke down, the car had to go to the workshop, in the basement a water pipe burst, the dog had to be operated on or you had a huge electricity back payment floated into the house. Actually, you could easily save 50% of your salary, if it were not for these constant unforeseen expenses, usually even in the high three-digit or even four-digit range. Something is always.
We also had an unforeseen event the other day. Pauline and I work in a rural area of England and our jobs are more than 50 kilometers apart. That’s why we can not both go to work by bike or public transport. While I make my way to work by train and bike (or now only by bike), Pauline has to drive to her job every day.
One morning, unfortunately, her car was left lying in the middle of the expressway: Engine damage. The towing service had to come and berappened $250 for the salvage. Since a repair would have been quite expensive, came instead Pauline’s dad from Germany, brought her a replacement car and took back the broken vehicle back with. Cost of the transfer: $600.
In the meantime, Pauline needed a rental car to get to work – another $150 off. Nothing to me, nothing generated the car breakdown so expenses of $1000. The savings rate of a whole month was gone.
This event made me think: could something like that happen to me?
Had my train an engine failure, then it would cost me absolutely nothing. On the contrary: In the event of a train loss, I would even get paid back the fare paid by the railway company. And even if my bike would completely disintegrate into its parts, I would have to buy a new used bike in the worst case. Maximum fall height: $50. I realized that not so much could be spent on my commute. Even in the largest possible loss, I would be at the end of the month so reliable a four-digit amount of money left to save.
Cost Exposure: How vulnerable is your lifestyle to unforeseen expenses?
Would not it be practical if I could design my other areas of life in addition to the work path so that high unanticipated costs can not arise in the first place? Then I would not have to work for weeks in my job, just to pay for a stupid car repair. I could better use my money for more important things. And last but not least, a constant fat savings rate (and thus my financial freedom) would not stand in the way.
I call this idea the principle of low cost exposure .
Your cost exposure is the susceptibility of your lifestyle to high, unforeseen expenses.
Fortunately, Joana’s car is an inglorious exception. Otherwise we are hardly vulnerable to unforeseen expenses, our cost exposure is generally quite low. For an average middle-class family it looks different: Big home, two cars, maybe even a motorcycle. Washer, dryer, fridge, dishwasher, TV and audio system. iPhones, iPads, Flat Screen TV, Dog, Guinea Pig, Garden Pond, Conservatory and Swimming Pool. The bill is simple: the more you have, the more you can break and the more unforeseen costs can come your way.
How can this expenditure be estimated at all? Is not it in the nature of unforeseen costs that they are unforeseen and simply come out of nowhere?
For that we make a little trip to the statistics. In fact, there are two types of unforeseen events: the unexpected and the expected unforeseen events.
Unexpected unforeseen events are those that have a low probability of occurrence, and with which no one really really expected: a plane crash, a rare disease, a house fire.
On the other hand, unforeseen events occur with great certainty at some point – but you do not know the exact time. Everyone knows: A washing machine breaks down someday. A car requires repairs after a while. Statistically you lose your wallet every 10 or 15 years.
If you were to write down your expenses for these expected unforeseen events over a longer period of time, let’s say over 10 years, you would see the following: whether more or less happens in a single month (“This month, everything really went all at once broken! “), does not matter in the long term. The higher your exposure, that is, the more opportunities that are built into this type of event in your life, the greater were your unforeseen expenses.
For this “measurement period” of 10 years, you could now form a monthly average. If you keep your lifestyle similar in the future, then you will come back to a similar average over the next 10 years. One month it will be much more, another much less, but on average you can expect this average value for your unforeseen costs.
So it’s not just bad luck or coincidence, if you regularly have to handle unforeseen major expenses and therefore can save nothing. Because these expenditures are in fact completely expectable and can even be estimated very well in the long term. Their amount and frequency is largely determined by your individual cost exposure. The more susceptible your lifestyle is to high unforeseen expenses, the larger those expenses will be in the long term.
How does it look like with me? And why is my cost exposure lower than that of the American middle class family? For one thing, it has one reason: I have almost no items that can cause high unforeseen costs. I do not have a car, a garden pond or a tumble dryer. We currently live in a shared flat for rent, the washing machine and the dishwasher we share with our landlords. The few items I use every day are almost all low-priced second-hand goods, which are cheap to replace in case of damage or loss. Here is a small estimate of my individual cost exposure:
- My bike ($50)
- Laptop ($230) and Smartphone ($50)
- My glasses ($300)
- Wallet ($40, mainly for the replacement of cards and ID cards, since I hardly have any cash)
- My pants that can break when skating or cycling ever ($40)
While the average family regularly has to face some unforeseen (but predictable) cost of hundreds or thousands of dollars, even total Armageddon – when all things get broken or lost at one go – costs just over $700.
This avoids unforeseen costs
Now Oliver has been philosophizing around here. But what good does it do me? Do I have to sell my car and my washing machine just so I have a lower cost exposure and can save more money?
Do not worry, you do not have to. Also, I consider a washing machine to be a great invention, which I would not like to do without.
Of course, in the first place always applies: What I do not have, can also cause no cost. In addition, there are other strategies to reduce your exposure to costs without sacrificing the conveniences of modern life.
- Avoid high cost exposures and instead use alternatives with lower cost exposure that serve the same purpose. Ride the bike to work instead of the car. Dry your laundry on a drying rack instead of in a dryer. As a homeowner, live as small and simple as possible . The less to your house is, the lower are possible repairs. Buy used items. Instead of a $2,000 TV, an older one does it for $100. A defect does not hurt that much.
- Share possessions with high cost exposure with others. A washing machine in the laundry room of a tenement can be shared by several parties. Share a car with your neighbors or use commercial car sharing. Move into a household or shared flat. Divide your house into two apartments and rent half. To travel by train also means to share: You share a big vehicle with others and thus (indirectly via the ticket price) also the repair costs. Instead of a house with a huge garden, you can move into the vicinity of a park or nature area. A park or forest is like a big garden that you share with other people (and whose care is paid for by taxes).
- And finally, the king’s strategy. The repair gurus of iFixit say: If you can not fix it, you do not own it. In German: If you can not fix it, then it does not belong to you. Learn to repair your possessions yourself.No harm can throw you financially off track, if you can bend it with your own skill and ability straight again. Pauline’s dad repairs his own cars. If one has an engine failure, he gets a new engine from somewhere and installs it. Personally, I do not trust myself in cars, but at least I repair my bikes on my own. In the family and in the circle of friends, I make mobile phones and computers afloat again. Basically, I always try myself first, if something is no longer working and learn so every time something to do so.
Even if you do not fix everything yourself, the mere expertise can lower the repair costs. Go to an auto repair shop, tell the mechanic what exactlyis broken and bring the necessary spare part (which you have previously bought on eBay). I bet every one that you get a much better price than when you say “Somewhere in the back right there is a clatter. Could you take a look? “ . The situation is similar with washing machines or tumble dryers. Repairing such devices is incredibly difficult. But it is enough to know so far that one is not hacked by the washing machine technician.
Everything you own has a part in you as well. You have to put money, time and energy into repairs, removals, disposal or resale. Ask yourself every time you invest in your life: What are the expected, unforeseen costs? Is the acquisition worth it?
If so, how can you minimize these costs? Is there an alternative with lower cost exposure? Can you maybe share with others? Or do the maintenance and repair yourself and learn something new at the same time?
We have definitely learned from history. In the future, we will strive to keep our jobs closer so that none of us needs to drive.