When Murphy Comes Knocking
We’ve all heard of Murphy’s Law that when things can go wrong, they will go wrong. And when it comes to a budget, especially when you’re just starting out with making one, a hit by Murphy can knock your budget to the floor pretty fast. But what will help resuscitate your budget? A plan! A plan to absorb the unexpected expenses of life. We can budget with an optimistic or pessimistic mindset. But what may be best is to make a realistic budget that is flexible enough to absorb the bumps and twists of life.
Where To Start Your Budget
How to START making a budget has been detailed in this post (click here).That was Budgeting 101, and this next step is the sustaining of a budget. A budget is a living tool, meaning it needs to be tweaked and adjusted and ever-changed according to the changes that happen in our lives season to season, month to month, even week to week.
Studies show that 50% of Americans could not absorb an unexpected expense of $400 or more without having to sell something or having to go into debt to pay for it. THIS is why, it is so commonly recommended that you have $1000 saved up. Get that saved up as fast as possible. These 1,000 dollars should not be invested somewhere or even in a CD. This is $1000 to have available to usee in an emergency. Remember, Christmas is not an emergency. We know when that’s going to happen and it happens every year. (If you want tips on how to make Christmas more affordable, yet more magical than ever, click here.)
After you have the $1,000 saved up, Dave Ramsey, financial guru extraordinaire, recommends having 3-6 months of living expenses saved up as a part of that emergency fund. If something goes really wrong, you’ll have a cushion while you revamp to come up with another plan. To learn more about how to do exactly this, click here.
What do these unexpected expenses look like? They don’t technically, generally fall into the Emergency Fund category, because they can be planned for. The Emergency Fund is supposed to be touched only in a crisis/emergency. Unexpected expenses are for example taxes, license renewal, fines, home repairs, haircuts, veterinary care, field trip fees, fundraisers, memberships like Amazon or Sam’s Club. These aren’t consistent bills that show up each month. They may not even be things you think about often, but all of a sudden you got a speeding ticket, and how are you going to pay for it, for example?
THIS is where sinking funds for unexpected expenses come into play. (The term “sinking funds” brings nothing happy to mind for me, so I simply call them “funds”. I know “sinking funds” is the commonly used term, but it does nothing to motivate me to save towards them, so I’ve discarded the use of it in our personal finances.)
How To Be Prepared
Panicking over finances and a feeling of scarcity can be behind you. You’re hustling to get debt free, pursuing it with intensity and focusing on spending on needs vs. wants. BUT how do you feel secure and at ease when these unexpected bills pop up? You make Sinking Funds. There’s not too much different between savings accounts and sinking funds. You could say sinking funds are savings accounts with specific missions.
If you know you have new car tabs coming due, ask yourself how much time you have yet to save for them, and divide that total by the number of months or paychecks you have to left before it’s due. Start saving that amount and setting it aside. Then when that bill comes due, you can pay it with peace of mind that you were ready for it and have saved for it. Nothing better! (Click here for ways to find and save money.)
Financial stress can be a thing of the past! Truly. You can do this! You can become debt free and financially stable and resilient, and you don’t have to have anxiety each time you open a bill. Financial peace of mind can be yours.
Thanks for joining SixOnABudget for your money saving journey!