❝The most difficult problems we experience in life will be unexpected.❞ -Mark Manson
Bingo's head is hanging out the window as we drive to doggy daycare. Bingo is a high-energy dog, and therefore, once a week, we take her to daycare to practice socializing and burn some energy. She loves daycare. The last time we were here, she ran right to her favorite handler and forgot that I existed. The handlers have a nickname for her, Bingee, and they like to spoil her.
Today I found out that there is a worker shortage. They don't have enough employees to handle the number of dogs that are coming in. It doesn't help that many families got dogs during the pandemic only to find out they didn't know what to do with their dog when they had to go back to work.
So, today I learned that there are too many dogs and too few employees. Unfortunately, that means that we can't go to this daycare anymore. They effectively shut down.
As a result, my wife and I have to look for a new daycare facility. After doing some internet research, my wife found a place that will likely work for us. The location is good and the hours work with us. Sadly, this daycare costs 50% more than the other one unless we buy 30 days up front.
In other words, we have to spend over $600. This is $600 that we didn't expect to have to spend.
A financial cushion helps dampen the blow that unexpected expenses cause.
The future is unpredictable. Although we do have some confidence in what will happen, there will always be things that come out of nowhere. This is true of life in general, but it's especially true with our money.
When unexpected expenses arise, it can stress us out. You probably experienced this before. Perhaps your car needed to be repaired. Maybe a family member was in a jam, and you were the only one that could help them out. It could be that your pipes burst, and you had to get a plumber out quickly.
Regardless of why, if we have no room for error with our finances, these unexpected expenses will cause strain. They will stress our personal finance system.
It's worth noting that it's not always negative expenses. Sometimes an unexpected opportunity arises, or friends and family come to visit. Anything that is outside of your regular budget counts as an unexpected expense.
Of course, you have more flexibility to turn down the unexpected favorable expenses, whereas you often have no choice but to pay the unexpected negative expenses. Still, not being able to use your money to take advantage of an opportunity deprives us.
Imagine a tightrope walker walking from one platform to another. This tightrope walker has been practiced, a lot. There's no reason to expect the tightrope walker to fall.
Still, if the tightrope walker makes a mistake or something unexpected happens, the tightrope walker will be in serious trouble. It might even prevent the walker from ever tightrope walking again.
Now suppose there is a safety net underneath the wire. The tightrope walker may not need that safety net, not even once. However, if something happens unexpectedly, the safety net will save the day.
In much the same way, having a financial safety net prevents catastrophes when an unexpected expense occurs.
You can think of a financial safety net as a sort of emergency fund. The difference is that you can use your financial safety net for unexpected positive expenses as well as negative ones.
Whatever you call it, having money set aside specifically for unexpected expenses will keep you from derailing your financial life.
AVOIDING FINANCIAL PANIC
When you know you have money available for surprise expenses, it gives you a sense of peace. When you have your financial life set up so that every dollar of income is accounted for, an unexpected expense will make money tight. And the tighter money is, the more likely it is that we will panic and experience a lot of stress.
Your financial cushion is there to prevent panic because you won't have to worry about where the money will come from. The money comes from your financial cushion.
Having money set aside in a savings account specifically to cover unexpected expenses is not an excuse to go out and try to find "unexpected expenses." This is not money that's to be used on splurging. Spending your financial cushion on things you don't need defeats the purpose of having a cushion in the first place.
Benjamin Franklin famously advised us to beware of small expenses because even small leaks can sink a big ship.
If you find that you are the type of person who lets money burn a hole in your pocket, or will spend money simply because it's there, then you have an extra hurdle to overcome. Understanding your money's purpose in your life helps you spend more mindfully and eliminate mindless spending that can sink your proverbial financial ship.
USING YOUR SAFETY NET
Once you build your safety net, you have permission to use it when those unexpected expenses happen. Not using your cushion will result in the same outcome as not having a cushion at all.
Think of your cushion as paying yourself first. Once you establish an amount that works for you, keep that account at that level. That means that if you have to use it, then with your next paycheck, you should replenish the cushion back up to your target amount. That may take a couple of paychecks, but your first priority should be maintaining the size of your cushion.
There's an old saying that anything can happen at any time. If you think about this regarding your expenses, you can start to expect the unexpected.
You don't have to know what the expense will be, when it will happen, or how much it will cost. All you have to know is that anything can happen at any time. A financial cushion helps you absorb these financial setbacks.
You only have one life. Live intentionally.
Until next time,
If you know someone else who would benefit from reading this, please share it with them. Spread the word, if you think there's a word to spread.
Related Money Health® Reading
References and Influences
Ariely, Dan & Jeff Kreisler: Dollars and Sense
Clements, Jonathan: How to Think About Money
Newcomb, Sarah: Loaded
Quinn, Jane Bryant: Smart and Simple Financial Strategies for Busy People
Sethi, Ramit: I Will Teach You To Be Rich
Note: Above is a list of references that I intentionally looked at while writing this post. It is not meant to be a definitive list of everything that influenced by thinking and writing. It's very likely that I left something out. If you notice something that you think I left out, please let me know; I will be happy to update the list.