This guest post from Shara is part of the “reader stories” feature here at Get Rich Slowly. Some stories contain general “how I did X” advice; others are examples of how a GRS reader achieved financial success — or failure. These stories feature folks from all levels of financial maturity and with all sorts of incomes. Last year, Shara shared her story about the other side of bankruptcy.
On a ride to town the other day, our truck started to overheat. The coolant was low, so my husband filled it. A few days later it started to overheat again: a coolant leak. A trip to my mechanic and a couple of phone calls later revealed a perforated coolant line and a $1500 estimate.
There's no hand-wringing about whether to fix it — the truck is worth more than $20,000 in good condition — but $1500 is still a lot of money to hand over all at once. It could easily lead to a lot of stress as we juggle expenses and wonder how to come up with that money. A lot of people would put it on a credit card and the stress would be compounded as every month any extra money went to bring that balance back down. However I was able to simply sigh and remind my husband, “These things happen.”
Some of my attitude comes from an outlook I've worked to cultivate. But mostly it's because I have the money in the bank to write a check. We make pretty good money, but you have to make far more than we do to not worry about a check of that size! A lot of people at Get Rich Slowly would pay for the repair out of an emergency fund. That's fine for some people, but I'd obsess about replacing the money. Besides, emergencies are those things you can't foresee. If you have a car, you're probably going to have to repair it eventually. The reason I'm not stressed is because of effective budgeting.
We're all familiar with the standards of a budget. It's easy to include major recurring expenses like:
- Rent or mortgage
- Cell phone
- Debt payments
But how many people remember to budget for irregular expenses? Do you include:
- Medical bills
- And, yes, car repairs
In order to be prepared for irregular expenses, I transfer money every paycheck into an ING account. I then keep a simple spreadsheet that looks something like this:
It takes me five minutes every month to update this spreadsheet. I can tell you in moments how much I have on hand to spend on gifts. I can tell you how much I spent on propane last year and project it for next year. If a balance gets especially high or low, I know it, and I can adjust my behavior or my budget. The money set aside for car repairs means I'm not only prepared for major repairs, but I also don't blink when routine maintenance comes due (and, therefore, I'm less likely to put it off). This has led to a better relationship with my mechanic, both because he knows I respect my vehicle and he knows he will always be paid.
This method also saves me a lot of time. I don't track every penny that goes out. I simply make sure that every dollar comes from the proper pot. I call this negative budgeting because I count down from what I've budgeted rather than adding up what I'm spending. Having a budget this specific isn't for everyone, but it makes sure one type of expense isn't dependent on anything else. If you're the sort to put off a vacation because your dog had to go to the vet — or even worse, putting off getting that sore knee looked at because Christmas is coming — this type of method might be for you.
Not an emergency
Most importantly, negative budgeting saves me a lot of worry. It helps my life outlook.
My emergency account is ready for real emergencies, such as when my mother-in-law was suddenly hospitalized. I was able to worry about her and the family rather than something else popping up for which I might need the money we used for tickets. While I can foresee the routine unexpected, real emergencies are much more rare. Therefore, I can relax and give the emergency fund time to replenish with my routine money transfer.
It's human nature to feel like the universe is victimizing us when something bad happens for which we're not prepared. But cars break down. People and animals get sick and hurt. Utilities go up and down to the point of pain when the weather is extreme. Bad things are going to happen. But it's not an emergency unless you make it one.