Use budget categories, have an emergency fund, and don’t spend just because you can.
There has been something of a comedy of errors with appliances this week at our house. First, our washing machine started overflowing. I came home from an appointment to find our garage flooded. I assumed the problem was only with the drain, but later learned the washing machine would not turn on. Within a day or two, our printer stopped working. The printer reads a series of error codes, that, when I Google them, I get mostly responses that tell me that it cannot be fixed.
Of course, this got me thinking about how these expenses fit into our financial framework. A large part of what I practice and teach involves creating a budget made up of pre-defined spending categories. For example, there are categories for household items, food, clothing, personal health, and children. Within those categories, we work to capture every expenditure we can reasonably foresee. The categories change as life changes, but the categories work to allocate the finite money you have in a way that accurately represents what is truly available to spend. They capture expenses that may not be imminent, but that reliably occur over time. With this system, I firmly believe you can plan for (almost) anything, so I was in a little dilemma this week when I was unprepared for these expenses that came up.
As life gave me these examples to ponder, I had a few discoveries. First, the system of categories works. Next, it is important to maintain an emergency fund for expenses that present as emergencies. And third, even if you have the money available, it doesn’t mean that you need to spend the money.
First, the categories work. In my dilemma this week, I was under prepared because I didn’t have these specific items considered in the categories. What I realized was however, that I could still apply the regular analysis to the items. Were they wants or needs? If they are needs, I need to adjust the categories and the category amounts to include them. If they are not needs, do we want to buy them with our discretionary money?
Second, having an emergency fund is critical. Some expenses will be above and beyond what you planned for and something you simply could not plan for. If an expense does not fit squarely into a category and is an emergency, then you should use your emergency fund for it. The washing machine for us was an emergency. With a small child, we do laundry nearly every day. We considered all our options. We could go to a laundromat, we could send our clothes to be washed, or we could hand wash them (crazy, but we thought about it!). Ultimately, it was important to us to have a washing machine at our home. The emergency fund permitted us to buy it because we weren’t otherwise planning to buy one. I will make two caveats here. First, the emergency fund is personal to you and it should be used for things you truly consider emergencies. Second, something that is an emergency once, does not have to be an emergency again. Once you know something may occur, then you can plan for it. We will revisit our budget and create more wiggle-room in our household items category for big ticket items and repairs.
Finally, even if you have the money available, it doesn’t mean you need to spend it. In the case of the printer this week, we thought about just buying a new one. I went on amazon and within minutes found a top rated, inexpensive, at-home printer. Sure, we could afford to buy the printer, but eventually, these things add up. And, more importantly, we had time to be mindful about whether we wanted a printer right now. We rarely print anything and are working to be more mindful of the stuff we consume.
The use of categories and pre-planning forces you to be mindful about your expenses. This type of budgeting requires adjustments to reflect life but provides you with a realistic view of your ongoing expenses. It shows you what is available to use, while prioritizing your goals and values and giving you room to be mindful.