Do unexpected car repairs, quarterly insurance payments or those darned property taxes find you hard pressed to squeeze one more dollar out of an already stretched monthly budget? Or do you usually end up reaching for the plastic in your wallet to make up the difference? Those inevitable expenses can put less stress on your bank balance -- and your mind -- if you learn to expect them and save in advance. Too often, irregular occurring expenses get left out of our financial equation. Our income stretches to cover the regular monthly expenses and the remainder trickles away toward little things like the morning espresso or lunches out or a dozen other daily splurges. We choose not to think about the brakes that are getting spongy or the plumbing that's beginning to make strange noises. And we end up riding a financial roller coaster, never knowing when the next crisis will throw us for a loop.
Planning and saving for those events can help prevent an ordinary life from turning into a crisis and can also cut down dependence on credit cards. Not having savings is a major reason people get into debt -- event when they don't have problems controlling their spending.
An Anti-Emergency Fund™ is the way to anticipate and save for those irregular events that are anything but unexpected. The Anti-Emergency Fund™ is the foundation of the three-part savings plan we'll be discussing in this and coming issues of Financial Fitness. With a little advanced planning, a broken water heater, a high winter heating bill or the family vacation don't have to result in financial emergencies. An Anti- Emergency account helps in saving for those variable expenses, both expected and unexpected, that inevitably occur.
Some people call this their "emergency fund," but it's really a savings fund that helps you prevent financial disasters. No, you can't predict when your car is going to break down, but you can predict that it will occasionally need maintenance and repairs and set aside a little money in advance for those events.
Here are some steps to help you get started on your Anti-Emergency Fund™:
Identify your irregular expenses. Take an inventory of those variable expenses that occur throughout the year. Looking back at checking account registers and credit card statements can help you do this. Some examples of these include property taxes, insurance premiums, vacations, car tune-ups, holidays and birthdays. List as many of your non-monthly expenses as you can remember.
Write the anticipated amounts on the calendar. In many cases, you will know when the expenses are due to occur. In others, you won't. But you know that sooner or later a car will have problems or an appliance will break down. Try to anticipate these expenses and list them somewhat earlier than you actually expect them to come up. Be sure to update your calendar as you discover more expenses.
Include money in your monthly spending plan for non-monthly expenses. If your car insurance, for example, is due in May, set aside a small portion each month starting in February. That way, when May rolls around you can transfer the expense to your spending plan and have money available to pay it. Setting aside even a few dollars each month for foreseeable expenses can make it easier to manage your money throughout the year.
You may think you don't have any "extra" money during the month to set aside, but repairing your car or paying your insurance are not optional expenses. By setting aside small amounts ahead of time, you're avoiding larger money woes ahead. So you may need to find ways to reduce your regular monthly spending. By tracking your expenses, you may discover areas where you can trim your monthly spending with only small sacrifices. Costs of twice-weekly trips to the drive through or a professional manicure can add up quickly over a month.
The important thing is to start today. It may be discouraging at first if you find that you don't have enough money to fully fund your Anti- Emergency Fund™, but you'll begin to succeed the minute you start the process. Small amounts of savings add up quickly and start compounding immediately!
One of the mistakes people make when trying to get their finances under control is not having a savings account. They may reason that it's better to put money toward reducing credit card debt at 18 percent interest than to toss it into a low-interest regular savings account. The problem is that if you don't have money set aside for those unavoidable bills, you inevitably end up adding to your credit card balance to cover the difference.
Stabilizing your debt means agreeing not to incur new charges and to begin paying down what you owe. A savings account is a key element in making that happen -- and in improving your financial fitness!
Cindy S. Morus (www.phelps-creek.com) is a Certified Financial Recovery Counselor specializing in showing women and their families how to achieve financial well-being and peace of mind. She is also a Certified Credit Report Reviewer and Get Clients NOW!™ licensee. Contact her at 541-387-2995 or firstname.lastname@example.org She is also the publisher and editor of "Financial Fitness", an internet gazette dedicated to helping people improve their financial fitness no matter what decisions were made in the past.