Tuesday, October 21, 2008

Planning for the Unexpected

When you are living paycheck to paycheck it is often easy to overlook a necessary part of your budget process that will prove to be a major stress reducer. This often overlook step is to pay yourself first. Having a savings account or secondary checking account has really set my mind at ease over the last few months as unexpected bills have occurred. I used to look at an unexpected expense as the end of the world complete with cursing, screaming, and head pounding. This was all in effort to try to figure out what to do as well as where we were going to get the money. We had even on occasion done the unspeakable and turned to cash advance places. These places charge nearly 300% interest and inevitably lead to larger financial problems. Now with proper planning I no longer have to patch the wall when something unexpected happens.

The first part of the process though is figuring out how much you can reasonably save each week/month and still be able to pay all of your bills and expenses. This amount may only be $10 a week or it maybe $100 it will vary depending on your situation. Once the amount is set you need to make sure the money gets there every time without fail. Theory is wonderful but without action it's just a lazy idea that really doesn't mean much.

This is also a wonderful way to save up for large expenses. For instance right now we are saving for Christmas. I actually have a separate "gift" account just for this that has been a blessing. I put a set amount in the account each week and as my gift needs dictate or as I find sale items I can simply purchase them without effecting my budget in any way. I don't have to worry about how I'm going to afford Christmas this year or next year I just know the money will be there when I need it.

All in all creating a savings account to pay yourself first has been one of our biggest financial wins. This is also helping us to move towards our goal of me being a sahm because we will have the savings in place. As the budget becomes smaller having a back-up for unexpected events will put my mind at ease.

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