If you’re like me, money worries hit hardest in the middle of the night. Fortunately, fear and anxiety about money don’t intrude on my sleep the way they once did.
Unplanned expenses used to pop into my mind like a terrible version of whack-a-mole. I’d say, “If we just had a ‘normal month,’ everything would be OK.” The truth is, things break, go wrong and cost money. Not being prepared was causing financial stress and chaos.
You can be prepared for upcoming expenses and stop your middle-of-the-night worries by accumulating money each month for predictable, less-than-monthly expenses such as tires, holidays and insurance.
Name an expense of yours that can become a minor emergency if you aren’t prepared for it. Let’s start there;
Look ahead – With your future minor emergency in mind, estimate how much it will cost to resolve. By when will it be a problem if you don’t take action? These steps may require some research. Don’t avoid knowing – it won’t make the expense disappear. Trust me, I’ve tried.Realistic budget – To calculate how much you will need to save each month, divide the cost of the expense by the number of months until it occurs. For example, if winter tires will cost $600 and you will need to buy them in six months, you’ll need to be saving $100 a month. As you make this a habit, planning for predictable less-than-monthly expenses will prevent them from becoming minor emergencies that can take months to reconcile.
Peace of mind – With the knowledge of how much you need to save each month, you will have to re-prioritize your spending. Remember, it’s peace of mind and a good night’s sleep that you’re after, not just covering expenses. Make your peace of mind a priority.Accumulating money – If I left the money I was saving for future expenses in my checking account, I’d be tempted to spend it. I recommend transferring that money out of your primary checking account at the end of each month into an account I call a “momentum account.” Notice I didn’t call it a savings account? I don’t like savings accounts. They tend to become a general fund where money has multiple purposes. It’s for vacation, car repairs, dentist visits and a wish list of other possible expenditures that you don’t have the money for right now.
Open a momentum account – This month, take action. Open a checking account to serve as your momentum account. I recommend a checking account so you can use a debit card and online bill pay. You can also transfer money into to and out of the account easily. At the end of the month, transfer the money you have allocated to preventing your minor financial emergency. This preparation will allow you to rest easy.
Next time, we’ll conclude this series by discussing how to make your dreams a reality.
Durango resident and personal finance coach Matt Kelly owns Momentum: Personal Finance. www.personalfinancecoaching.com.