L.I.F.E. Happens – How to Get Ahead
When I hear the phrase, “I just can’t get ahead,” I think of our money situation like a treadmill and no matter how fast you run, you are not really getting anywhere. You don’t want your financial life to look like one of those YouTube© videos where the person falls off the end of their treadmill and hits their face. People want to get ahead of their bills and have money set aside and not have to worry about what will happen if their next paycheck doesn’t arrive on time. So why are we not getting ahead?
Because LIFE happens to everyone. And when we say LIFE happens we are referring to the following:
- L – Listed expenses are underestimated
- I – Impulse buying
- F – Forgotten bills
- E – Emergencies
L – listed Expenses are Underestimated
It is one thing to guess how much you spend on food, gifts, and clothing, but it is another thing to guess correctly. Most people do not realize how much they actually spend on each budget category until they really start to pay attention to where their money goes. You may have more of a shortage each month than you realize simply because you have underestimated how much you actually spend on certain categories.
So how can we keep this from happening? Its important to track your spending for a few months just to see where your money really goes. And make sure it is going towards those things that are really important to you.
I – Impulse Buying
Grocery stores place candy bars right at the checkout line. Department stores place their magazines, batteries, and other items near the registers. This product placement is not by accident. Even an innocent evening where you plan to just “go out” can result in hundreds of dollars spent on items that were on sale and not listed in your budget. Impulse buying is a huge budget buster and a quick way to end up with shortages at the end of the month.
While we may not completely eliminate all impulse spending, we can reduce it. For example, when grocery shopping make sure you have a list and stick to it. At all other times it is important to have some type of financial goals, especially short-term goals such as an upcoming vacation or a new dining room table you want to purchase. This way you can put those dollars in perspective and realize that you don’t want t make the impulse purchase because you want that money going towards something more important. You aren’t giving anything up, just getting something better instead.
F – Forgotten Bills
This is a big issue, especially when you plan your budget pretty tight. It is frustrating enough to cause some people to give up altogether. Many people forget to take into account bills that do not come due every month because they do not use a budget. For instance, many automobile insurance policies are due every six months. It is much easier to set aside $100 per month to make your insurance payment than it is to come up with $600 at one time when the statement arrives in the mail three weeks before the due date. Other forgotten bills include taxes, homeowner’s association annual dues or other membership fees. Without accounting for these irregular payments, you may think you are achieving your financial goals when you are really falling short.
At least once each year you should sit down and think through each month and each season. Are there birthdays, anniversaries or upcoming weddings where you will need to purchase gifts? What months do you pay insurance or have your propane tank filled? It really is about spending just a few minutes each year to plan through the year.
E – Emergencies
Even those of us who teach personal finance for a living cannot avoid emergencies. We can just be better prepared. In fact, sometimes people who are very responsible with their money and never spend more than they make have trouble covering an emergency expense if not planned for in their budget. What happens when the transmission goes out in your car, the refrigerator breaks, or you have a medical emergency? Keep in mind; almost all insurance policies require you to pay a deductible up front.
Establishing an emergency fund helps protect you from these situations. Start small, say $500, and try to build it up each month.
While we say LIFE happens, it doesn’t mean LIFE happens TO us and it is out of our control. In fact, the first three items or letters were directly about OUR own behavior. The last, emergencies is the only one out of our control, but we can still reduce the negative impact by having a plan in place with some emergency money saved up since we know every year something unexpected is going to happen. To be even more proactive, next week we will go the opposite direction and show you how to SPEND your way to financial success.