UFOs Can Harm Your Finances!

Don't worry about little green men, because it's Unforeseen Financial Occurrences that usually zap your finances.

According to research from Lloyds TSB, three in five Brits (60%) encounter a UFO each year -- an Unforeseen Financial Occurrence, that is!

Unforeseen financial occurrences (UFOs), such as the boiler breaking down, often do serious damage to our household finances. However, only one in five of us (20%) are able to rely on our savings to pay for UFOs, according to Lloyds TSB's survey.

Over half of the adults surveyed by Lloyds TSB claimed that they spend between £200 and £600 a year on UFOs, with a further tenth (10%) forking out over £900. The most common UFOs are:

From £1,000 to £2,000 for a new boiler (my boiler died one freezing November and cost £1,200 to replace -- brrrr!);
Up to £1,000 for unexpected car repairs;
Around £500 for emergency household repairs, e.g. plumbing;
Roughly £500 to replace broken electronic equipment; and
Anything from £100 to £1,000 on emergency dental treatment.

Lloyds TSB also looked into how people pay for their unwelcome UFOs and found the following:

Half (50%) of us use our credit card;
One in five (20%) use our savings;
A tenth (10%) have enough in our current account to meet the cost; and
Another tenth are forced to borrow from our partner or family.

Of course, using a credit card to pay for UFOs can be an incredibly expensive way to borrow, unless you use a 0% card. However, this article shows you how to spend or transfer balances while avoiding interest for up to a year. Eureka!

Furthermore, in an ideal world, you should have enough money set aside (in a high-interest savings account, naturally) to meet, say, three to six months' expenses. You should aim to earn around 5% a year before tax in a top-notch savings account. Also, you can also earn similarly high rates of interest in a Best Buy current account -- why earn a pathetic 0.1% a year when you can get fifty times as much interest by switching banks?

Then again, if you don't have enough money to cover an unexpected bill, rather than borrowing at high interest rates, you could try taking a payment break from your loan or mortgage repayments. However, this will require prior approval from your lender, plus it will lead to your interest bill increasing during the period when you don't make repayments. Hence, this isn't a cost-free option and should only be considered as a last resort.

Finally, if you'd like to become a brainy borrower and a sophisticated saver, then check out these three articles:

Here's to fewer UFOs and more money safely tucked away!

More: Use the Fool to compare credit cards, compare savings accounts and compare current accounts!

Disclosure: Cliff owns shares in Lloyds TSB.