By Alicia Kellebrew
NFCC certified financial professional
The Village Financial Resource Center
When constructing budgets with clients, I always discuss the all-too-often overlooked category of “periodic expenses,” which includes those things like out-of-pocket medical costs, car repairs, registration, and maintenance, gifts, and travel. All the costs of life that we know we will eventually run into but have no idea when they will happen or how much they will cost. As I always say: “If we all had our way we would have a million dollars in the bank waiting for these.” But what do we do if we can’t don’t have that? We set aside small amounts every month and hope that will help cushion the blow when the time comes.
I talk about this in my office multiple times a day and do set aside for the unexpected, or, as I affectionately call them, the “dark horses.” Even so, that doesn’t mean it isn’t a bit of a shock to the system when these things happen. I know from recent experience. My beloved little blue car of eleven years went home for Easter and decided that she was tired and had lived her useful life. Now I would be lying if I said I wasn’t partially waiting for this day to come. Everyone in my social circle kept asking when I was going to get a new car. My reply had always been “When the one I have dies or requires a more expensive repair than she is worth to keep running.” Suddenly here I was facing the very thing I was hoping to put off until I had more student loans paid off.
So what is a person in this or a similar position to do? While my situation involved the loss and replacement of my form of transportation, the process I went through can be applied to other areas. Here are some tips:
- Go through your budget and re-evaluate your expenditures. Before making any decision that will impact your finances, you should carefully consider how each option will affect the overall financial picture. This may mean crafting multiple versions of your budget to determine what you can and can’t do without. Often this comes down to three scenarios: the “bare bones” budget (just essentials and obligations already locked in), the “ideal” budget which gives you the room to do everything you would like to be able to do, and the “middle of the road” budget which covers all the essentials and the things that you would like to do that you care about the most.
- Analyze your budgets to determine what would be within your comfort zone. Once I had my three budgets I could clearly see what I wanted my “ideal” car payment to be (you know, like, almost nonexistent!) and at what point I would potentially be stretching myself too thin. It is very important to be honest about what would be a stretch for you. In some cases, this new debt or obligation will last a long time so you want it to be something sustainable long-term. Be sure to factor in the other added costs like extended warranty, insurance, gas usage, and maintenance as this can completely change the cost of your new car (or other unexpected expense).
- Do careful research. Now that you know what you are comfortable with, you can do careful research to determine your available options. It is so important to determine for yourself what is doable first to avoid being swayed by outside opinions (salespeople in my example) or other factors that may influence your decision (like the lovely color or cool features of that one car!). In this stage don’t be afraid to ask any and all questions. Also don’t be afraid of finding out that your questions will eliminate some options. That is exactly what you want to do – reduce your options to the ones that are the most realistic for your situation.
- Stick to your guns. Any time something happens, our support networks (and even outsiders!) are there to offer their advice and suggestions. While two heads are usually better than one, make sure that you don’t let anyone else’s opinions influence you into a decision that may not be the best fit for you.
- Realize sometimes there is no perfect solution; you just pick the best option available to you at the present time. Once you have gone through this whole process none of the options may be what you have envisioned or hoped for. Realize this doesn’t make the process a failure and that sometimes the best option is the least bad one of the bunch.
- Work towards being more prepared for next time-without beating yourself up about what you feel may have been a lack of preparation this time. I quickly learned that the cost of purchasing a vehicle had gone up in the 6 years I hadn’t made a payment. Although I had continued to make the car payment to a separate car fund upon payoff as often as I could, the amount I had saved wasn’t as high as I had hoped (the fund doubled as the “repair/replace” stash). While this was disappointing, I was glad that I had the amount I did have as a cushion. You can never go wrong by saving up money even if you wish you had more.
Bottom line: Even though we know to expect the unexpected, we can feel unprepared when it actually happens. In the midst of a time of trial it can be easy to rush into making a decision, but it is in your best interest to carefully evaluate the situation to make sure you aren’t jeopardizing your financial future.