There’s just about nothing as frustrating as trying to be fiscally responsible, and to reduce gratuitous spending, only to then end up in a situation where all your best laid financial plans seem to go completely amiss, thanks to some surprise expense that just pops up out of nowhere.
There are all kinds of potential causes of surprise expenses, ranging from accidents, to annual subscriptions and payments that you just completely forgot about when you were planning out your budget. Whatever the cause, however, there’s no doubt that it really sucks to be hit by unexpected expenses.
Here are just a few things to remember in order to give yourself the best possible chance of avoiding surprise expenses, keeping your blood pressure down, and not having to deal with the extreme frustration and irritation that comes with having to spend money you were expecting to hold onto.
When you are planning for tomorrow, you will likely be visualising a perfect scenario – but when you actually get to tomorrow, it’s business as usual
Here’s an interesting quirk about the human mind that various psychologists have commented on: we always seem to visualise an ideal, insightful, and completely disciplined version of ourselves, when we are planning for the future.
When you are planning for “tomorrow” (whether that is literally tomorrow, or a week, month, or year from now) there’s a good chance that you are being extremely idealistic in your planning – especially when comes to financial matters.
You might think, for example, “after next month I’ll cut out all of these entertainment expenses, and then I’ll just feel completely content with reading books and going for walks. But until then, I’m going to keep enjoying Netflix.”
Then, when next month actually comes around and you do cancel those services in line with your financial goals, you quickly find that you’re actually totally displeased with the situation, and immediately end up reactivating your subscriptions, or going out and spending a bunch of money on some other form of entertainment.
Instead of being overly zealous when you’re planning for the future, try to make the kinds of plans that would reliably work for the “you” that you are today – not the “you” that you hope you will be later on.
Of course, you can and should still set yourself goals to change your habits, adjust your tastes, and move in more productive directions. But it’s all a matter of baby steps, and the most reliable and effective plans are always going to be the ones that pretty closely address your current reality.
In other words, be realistic about how you are budgeting for the future, and accept that some portion of your money will always seem “wasted” if you’re looking at it from a completely utilitarian perspective. You are a human being, after all, and you’re going to want the occasional meal at a restaurant, the occasional visit to the cinema, and the occasional consumer purchase.
Failure to prepare means you are preparing to fail
The Scout motto of “always be prepared” applies brilliantly to life as a whole, but it seems to apply especially well to financial life.
It’s always pretty easy to tell yourself that you will “deal with” situations and challenges as they arise, and that, even if you haven’t come up with a strategy or budget for a particular contingency, you’ll be able to get through it without having to ruthlessly flog your wallet.
As in the last point, though, this kind of mindset is likely a sign that you are being overly ambitious about just how “future you” is going to feel and act when faced with certain circumstances, versus present you.
Here’s an example – let’s say you are going on a day trip to the seaside. You know that you are going to get hungry at some point during the day, and that buying food at your destination is going to be pretty expensive. You probably realise that it would be a good idea to prepare and pack your own meal before you leave, but maybe you just don’t really feel like it, and so you shrug it off with some thought like “I’ll cross that bridge when I come to it.”
Maybe you think you will be able to enjoy your day out without eating at all. Or maybe you believe that you’re going to find a miraculously cheap and high-quality food vendor when you get there. Or maybe you’re just not really thinking about it at all.
One way or the other, though, the most likely outcome is that you’re going to feel your stomach rumbling at some point during the day, and are then going to end up dropping a lot more money than you had originally wanted to hold onto, in order to feed yourself.
Failure to prepare means that you are preparing to fail. So always set aside part of your budget for unforeseen expenses, and work out a viable action plan before getting involved in any activity, pastime, or event where money may be on the line.
Incremental steps in the right direction, if consistent, are usually more meaningful than occasional large-scale actions
When you’re trying to save up and create a financial buffer against unforeseen expenses, you may feel that the only meaningful way to go about things is to put aside major lump sums of money each month.
Of course, saving lots of money fast requires you to live a pretty frugal lifestyle as a whole, and it’s not usually the kind of thing that people can keep up over the long term. More likely you would find yourself saving up a large lump sum every now and then, frittering it away, and then getting hit by a surprise expense anyway.
Generally speaking, incremental steps in the right direction are usually more meaningful and effective than occasional large-scale actions – at least if those incremental steps are done consistently.
Buffering yourself against unforeseen expenses is generally a matter of knowing how to calculate percentage and put away a proportion of your income on a regular basis – while simultaneously shaving off a manageable portion of your regular expenses, so as to increase your savings over time.
You don’t have to go for the big, grand gesture all the time, and you don’t have to expect that unwelcome expense to crop up tomorrow. Just get into the routine of moving things in the right direction, bit by bit.
Your budget needs to be able to adapt on the fly – because no plan perfectly survives contact with reality
In recent times, zero-based and “envelope” budgeting systems – such as Actual and You Need a Budget – are extremely popular, in large part because they allow you to adjust your budget on the fly, instead of trying to come up with an immaculate spreadsheet that you need to stick to rigorously throughout the coming year.
The thing about all plans is that they rarely ever survive contact with reality. At least not without having to undergo significant change and adjustment.
That goes double, or maybe even triple, for financial plans. If you create a budget that is too rigid and idealistic, it’s very likely that the first sign of inevitable friction is going to cause the entire budget to collapse in on itself, and leave you in a situation where you are not prepared to properly anticipate, or arm yourself against, upcoming expenses.
Consider using a tool such as Actual, or at the very least be aware that trying to budget too far into the future, in too much of an in-depth way, is likely to result in a system that isn’t ultimately practical when things start happening in the real world.
“You don’t rise to the level of your expectations, you fall to the level of your training”
There’s an old saying that’s been around since at least the time of the ancient Romans, which goes; “we don’t rise to the level of our expectations, we fall to the level of our training.”
There are a number of variations on this quote, but the basic idea is the same anyway – the odds that you are going to be able to “step up” and pull off a previously unheard of performance against a particular challenge, are pretty small. What’s far more likely is that you’re going to revert to your usual habits and routines.
Protecting yourself from an unforeseen expense is likewise largely going to be a matter of cultivating the right financial habits, instead of holding out for a heroic performance when the financial problem does, in fact, rear its ugly head.
So, get used to doing things each day, habitually, that not only help your financial security and help you to save more money, but that make you less vulnerable to the unknown.
The more you can become self-reliant in the various dimensions of your life, for example, the greater the chance that you are going to be able to weather whatever storms come, when they do come. Get yourself used to acting in the way you’d like to act if something were to go wrong.