Are you the type that gets mad at traffic?
What about the type that gets mad at airport security lines?
I was in an airport security line recently where multiple lines were merging into one when I heard a guy say to another traveler who he thought cut in front of, “I’m in line, too!”
Clearly, he’s the type who gets mad in airport security lines.
This always puzzles me.
You know there’s going to be traffic. There’s always traffic.
You know airport security lines are chaotic.
Why do we let these things bother us?
My theory is that because we didn’t plan ahead. We didn’t check the directions before leaving the house to avoid traffic. Or, we didn’t get to the airport early enough to not stress about security lines.
The point is that you can’t stop traffic from happening just like you can’t avoid security lines at the airport.
But, with the right planning, these inconveniences don’t have to ruin your day.
What does this have to do with personal finance?
Well, traffic and security lines are unavoidable.
That doesn’t mean you have to like them. You just have to accept that they are part of life and things you can handle.
You know what else is unavoidable?
Budget busters.
What are budget busters?
Budget busters are any inconsistent expenditures, good or bad, that can derail your finances if not properly planned for.
Good budget busters might include trips, weddings, and holiday/birthday gift shopping.
Bad budget busters include unexpected car repairs, home repairs, or medical expenses.
The key with budget busters is that you need to plan ahead. That’s because even though we know budget busters will happen, we just don’t know when they will occur.
When I teach personal finance to young lawyers, this is one of the major areas of concern when it comes to budgeting. It is not uncommon for people to worry about how they’re going to pay for inconsistent, big ticket items.
Remember, budget busters don’t have to be for only “bad” things, like repairing a furnace. More on that below.
Budget busters can also be for fun things, like being a bridesmaid in your best friend’s wedding, which can easily cost you thousands of dollars.
With the proper planning, you can handle these inconsistent expenses, good or bad.
If you don’t plan ahead, budget busters will make you mad in the same way people get mad at traffic and airport security lines.
Budget busters are not unexpected expenses.
You may sometimes see budget busters referred to as “unexpected expenses.”
Nope, that’s wrong.
Budget busters may be inconsistent, but they are not unexpected.
It’s more accurate to say that budget busters are 100% expected expenses. We just don’t know exactly when they’re going to occur.
Like with traffic and lines at the airport, budget busters are inevitable. It’s up to each of us to plan ahead to minimize the inconvenience and stay on track with our finances.
I don’t make many guarantees around here. This is one I’m comfortable making:
I guarantee that each of us will face potential budget busters throughout the year.
In fact, I just experienced a potential budget buster on a cold November morning in Chicagoland.
I had a potential budget buster recently when I replaced a furnace.
A couple of weeks ago, on a cold November morning in Chicagoland, I woke up with a broken furnace.
It was certainly inconvenient and potentially a huge drag on my finances. The final cost to replace my furnace was more than $10,000.
As much as I didn’t enjoy this expenditure, it was not an unexpected expense. My furnace was 20-years-old. We knew it was going to need replacing at some point. It was only a matter of time.
That’s why it’s just not accurate to label replacing my furnace as an “unexpected expense.”
No, I didn’t know when my furnace was going to break. But, I knew it was going to happen eventually. Because it was already 20 years-old, I knew it was probably going to happen sooner than later.
Luckily, my wife and I had made it a priority this year to build up our emergency savings. We did not know what we would need the savings for, but we fully expected that something would pop up.
I say “luckily” because in prior years, we would have been scrambling to find the cash to replace a furnace. That’s because we had prioritized buying investment properties at the expense of funding our savings account.
That was a risk that made sense while we were growing our portfolio. Now, we’re more focused on protecting what we’ve built. Hence, prioritizing the emergency savings account.
Because we have been steadily funding our emergency savings account this year, we just moved the money over to our checking account and paid for the furnace.
We didn’t have to rely on credit cards or lines of credit to provide heat for our family.
I even made a game out of it to take a bit of the sting out of this big expense.
Plan for budget busters as line items in your Budget After Thinking.
I recommend including two separate line items for budget busters in your Budget After Thinking.
Have one line item in your Now Money category (bad budget busters) and one line item in your Life Money category (good budget busters).
You likely won’t end up spending your budget buster money every month. That’s a good thing.
The key is that each month that you don’t spend your budget buster money, transfer it to your savings account so it’s there when you need it.
This is an important step. You don’t want to let that hard-earned money sit in your checking account. Those dollars will disappear.
By transferring them to savings, those dollars will be at your disposal when needed.
What kind of savings account am I talking about?
Be sure to have a separate savings account for emergencies, like budget busters.
It’s a very good idea to keep your savings separate from your everyday spending. That means having a savings account and a checking account.
Of course, the most important savings account you need is an emergency savings account. This is what I used to pay for my furnace.
Ideally, you should open up a savings account at a different bank than your checking account. This helps isolate those funds so those dollars don’t disappear.
There are lots of good options for high-yield, online savings accounts. I used to bank with CapitalOne, but then they burned me and thousands of other customers. Never again.
I now use BMO Alto for my emergency savings account. They offer a good interest rate and a no frills product. Very simple and straightforward.
Don’t be mad at budget busters.
With the proper planning, you don’t have to be mad a budget busters.
Include budget busters as line items in your Budget After Thinking.
Open up an emergency savings account at a different bank than your primary checking account.
When inconsistent expenses pop up, you’re covered.
Save your frustration for traffic and security lines.
Have you dealt with budget busters in the past?
Were you prepared to deal with them? Or, do you wish you had planned better?
Let us know in the comments below.
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