This morning, while talking with my wife, I caught myself saying something that is a pretty common budgeting/money management mistake. It was in response to my wife’s question about when we were going to purchase a couch. (Yesterday a magazine salesman came to our place trying to make a sale. I had to laugh at myself later when I realized how absolutely sparse our place looks at the moment. And he wanted me to subscribe to new magazines? I can barely make it through Kiplinger’s each month…) Anyway, back to the couch. She asked me when I thought we would be able to purchase the couch.
My response was meant to slow things down, pace ourselves, and evaluate, but it doesn’t really hold water:
Let’s just wait until things get settled, until we have a normal month.
At first pass that may seem reasonable. My wife thought it was (so perhaps I needn’t worry past that? 😉 But in thinking about it more this morning you can see how my response to my wife was basically saying:
We’ll never buy a couch.
Now of course I wasn’t intending that. I do want a couch. Soon actually. (Though when you don’t own a TV, the need for a couch is substantially lessened, a bit of a side note). But in waiting for a “normal month” I’m basically waiting for eternity. In life, there are no normal months. Some months may be worse than others, but none of them are ever normal.
You could be pluggin’ along great in September when your kid falls out of bed and breaks their nose on the bed post, necessitating an ER visit.
Your car could be totaled by something you ran over in the road.
You could experience flooding.
The sales commission you were expecting could be held up.
You could lose your job (though a well-funded emergency fund could curb this quite a bit).
Anyway, the list is infinitely long. And believe it or not, at least in my experience and the experiences of many people I’ve worked and spoken with, you’re statistically likely to have an unexpected event (be it large or small) every month. Period.
The whole “perfect month” idea is for sitcoms (well, the traditional old-time sitcoms, today’s sitcoms seem to be dysfunctional from the start).
Instead of always looking for something that’s never going to appear, what you can do is focus on how to deal with a normal month. And for the rest of this entry, a normal month is defined as follows:
normal month – a month where the unexpected (large or small) will happen.
Your greatest weapon against the normal month is to budget. You knew I would say that. I don’t mean you just budget by throwing down your goals for the year (how the heck can you forecast a year into the future?!) and I don’t mean just writing down what you spend (though there is plenty of merit to that). When you budget you’ll want to implement the following:
- Live by Rule Four espoused all over this site. Build up a buffer and live one month behind your income. What you make in January, you spend in February. That right there gives you knowledge about the month for which you’re budgeting that you would not have had before. And that knowledge helps you make better-informed decisions.
- Operate on a monthly basis. Don’t attempt to forecast a year into the future. There are corporations that spend millions and millions of dollars per year trying to accurately predict manufacturing, staffing, and cash flow needs to optimally run their business. There are people employed full-time to do this. They use extremely complex models and they’re still wrong. However, attempting to forecast 30 days into the future is very manageable. I highly recommend it.When you’re having your budgeting meeting with your significant other, talk about the upcoming month. Try to anticipate what it is you may be facing. Be a bit of a pessimist. Be conservative. Run through various scenarios. I’m not talking about trying to do sensitivity or multi-variate analysis on your life here. I’m just saying that talking about what’s coming will be much more helpful than just blindly going into things. That exercise alone will help you mitigate the effects of a normal month.
- Follow Rule Two. This is not an easy rule. It’s much easier said than done. But when you look to the future and just set aside money for the knownfixed expenses (home owner’s insurance, property taxes, renter’s insurance, car insurance, Christmas, gym memberships, car replacement, magazine subscriptions, college tuition, etc.) the effects of a normal month will again be substantially mitigated. It is very tempting to dip into these Rainy Day Funds to live for today at the expense of tomorrow. Avoid that temptation!
The normal month is the month where something, many things, an unbelievable amount of unexpected things culminate and knock you financially off balance. When operating a budget without the three guidelines mentioned above, you just have a tougher time regaining that balance. Follow the guidelines and you’ll notice your normal month is not quite as tough as it used to be.
Perhaps we’ll buy a couch sooner than I thought.