Money. For many of us, it seems like there’s never enough. Perhaps because some of us squander it. Perhaps it’s a case of living beyond one’s means. Maybe it is a reckless disregard for money’s value. Sometimes a hit to your wallet is simply Murphy’s Law: you get your tax refund and then find out your car needs brakes.
Even if saving money is ingrained in your DNA, having to tap into your account is particularly jarring when the expense is unanticipated. You may have the best budgeting strategy around, but who can expect the unexpected? You can.
Think Like a Business
There’s no need to take the joy out of life by over-strategizing. But you may want to think a bit more like a corporation and how they plan. They research costs and compare their out-of-pocket from the previous year to lay the baseline of the upcoming year’s fiscal needs. (Not all companies do the best job of this. Either because they are not realistic or just do not know their numbers!) Understanding your personal financial life takes a little time, patience, a dose of reality, and a tool as simple as an Excel spreadsheet.
So…is a new roof or air conditioning expenditure in your not-too-distant future based on the age and increasing need for repairs? Then do your homework and get recommendations; become the best expert you can on what your home does and does not need.
Look back on your credit card report and check register. What was your cost of living last year? Now armed with solid points of reference you can begin to frame the picture for the year to come.
How To Plan
Life is to be enjoyed. If you needed to treat yourself to that 65” Full HD Smart LED TV for your Super Bowl party and will be paying it off in installments on your credit card for a couple years; it was a decision that made you and your friends really happy.
What takes you by surprise, are the things that take you by surprise. What can you do?
Business Insider offers helpful insight from financial guru, Ramit Sethi from his book, I Will Teach You to Be Rich:
He gives the example of saving for Christmas gifts: ‘If you know gifts will cost you about $500, start setting aside $42 each month in January so you’re fully prepared come December.’
Include unknown, surprise expenses in “fixed costs.” His rule of thumb is to add 15% to your estimate of your fixed costs to cover the surprise expenses. It’s helpful to start setting aside $50 each month for the unknown costs. ‘You’ll soon realize that this cartoonishly low figure [$50/month] is not enough. But with some time, you’ll have a better idea of what the figure should actually be and can change the amount accordingly … After about a year or two (remember, think long term), you’ll have a very accurate understanding of how to project. The beginning is the hard part, but it only gets easier.’
Having overdraft protection and a line of credit are not the best emergency tactics. A couple dollars of prevention is worth a pound of expenditure.
The information contained in this article and any other article do not reflect the views of rapid! PayCard®. The opinions, conclusions and other information expressed are neither given nor endorsed by rapid! PayCard® or its representatives, but provided for the sole purpose of presenting updates on current research in this sector.