Wednesday, December 16, 2015

And then the Horse got sick

I was driving home from work last night, when a friend of mine texted me that my headlight was out.

"Oh, Great. One more thing," I thought.

My car is great, it's worked very hard for me; however, there have been some issues cropping up lately.  Last winter a chip in my windshield turned into a crack, which I've been meaning to get fixed for almost a year now.  There is a belt that been consistently screeching at me for a month now.  And, there is some kind of issue with my wheels.

So, I took the car to the shop today.  For three hundred and fifty dollars I received a new headlight, a new drive belt, and new brake pads (installed).  But of course, where did the money to pa for this come from?  Well, yes my job is the basic answer, but was this money already earmarked for another purpose -- probably.

Like the federal government we often pre-spend money, and pretend that we have pre-saved the money to pay for it.  I think it's rather obvious how this leads to deficit spending.  There has to be a better way, but what exactly does that look like?  Stuffing money under your mattress is not the best, though perhaps it's the most honest.  How can you make plans which require money you don't have, without spending the money ahead of time?

There is a common sense financial concept called an emergency fund.  This is the liquid capital that you keep available for unplanned expenses (broken car, plumbing repairs, etc.) -- mattress money.  How to calculate the proper amount to store in the mattress? One thousand? Five thousand? Ten thousand?  What is the answer.

Here is a proposal.  It's the amount of your most expensive month.  This plan requires that you know how much you spend per month; however, if you can cover all your bills for a month, and you aren't living beyond your means regularly, then you can spend a month figuring out how to take care of this sudden issue without missing any regular (expected) bills etc.   You can use this account for any unexpected expenses, but you have to pay it back up.

So this is another plan for the farm this year.  Build up the soil with some emergency fund fertilizer. 

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