1…2…3…Surprise!

Last time we talked about spending every dollar with intention, and I shared a simple one-week experiment for you to try out zero-based budgeting. So, how’d it go? Did you spend with more intention? How was the week? Were there any hurdles you ran into? If you could take just 2 minutes to say hi, I’d really love to hear about your experience!

Now, to quickly review: we’ve been going over the 4 basic principles that I’ve found success with. The first two were:

  1. Having conversations about money
  2. Spending every dollar with intention

So far, I’ve been sharing these in what I’d consider priority order. I’ve never gotten very far when I wasn’t having real, candid and kind conversations with my wife about money. Being on the same page, and airing our concerns, ideas, and dreams has really become the foundation for our financial progress. And when it’s time to put our money where our mouth is, creating a plan for every dollar has been the only way we’ve been able to follow through with ditching the “budget dictator” and really taking control of our financial life.

Today it’s time for the third principle that Katie and I use for successful budgeting: minimize surprises in our finances.

Surprise!

Surprise!
Photo courtesy of Steven Depolo

In the past we’ve often had a bill show up in the mail right when we’ve had just enough money to make it through the month. As I open it up and see the sender’s name I stop and my heart sinks—I realize that I’ve forgotten something. Of course, it’s our semi-annual car insurance bill for around $600. Well, there goes my good mood down the drain, and my carefully planned budget for the month.

It’s so frustrating! I’m totally aware that my car insurance bill was predictable, and that it didn’t need to be a surprise! But somehow, despite that predictability, I’ve found myself caught off guard by “surprises” like this so many times.

Unfortunately it took me a while to learn my lesson too. At first I tried promising myself that I’d remember the next one in 6 months—that never quite worked out.

A few times I’ve tried adding a repeating event into a calendar to remind me—that worked a bit better. But I’ve often made the mistake of putting it in the calendar for the day it was due—it still felt like a surprise when the calendar reminded me.

Avoiding promises from the future

One of the biggest problems with lump-sum payments is that I’m essentially making a promise on behalf of my future-self. I’m committing today that I’ll have the money to cover cover this big payment in 6 months. But do I really know I’ll have the money for that? Is that a promise I’m sure my future-self can keep? Probably not.

That’s why my most successful tactic for minimizing surprises has been to avoid these kinds of lump-sum payments, and instead opt to pay monthly. This sometimes means we’re paying a small fee (say $3/month) for the convenience, but I think it’s absolutely worth it to minimize surprises in my life.

Because when I have less surprises with my money, I feel calm and peaceful. And when I have peace in my life, I simply make better decisions.

Two kinds of surprises

Some “surprises” like semi-annual insurance bills, yearly car maintenance, anniversaries, and—gasp—christmas aren’t actually surprises at all. These kinds of things are predictable, and we can easily plan for them. But there’s another category of surprises—the real ones!

About a month ago, our car malfunctioned in a pretty serious way. The components that control the throttle were cutting out, and responding to the gas pedal unpredictably. We ended up stuck on the side of a skinny, winding, mountain road unsure of how we were going to get our car to a garage, and how to get our family safely home. Fortunately, the one thing we weren’t stressing about was how we were going to pay for this little emergency.

You see, this was our first real surprise since becoming debt free. We had vowed to each other not to go into debt again for anything besides a house. That meant we weren’t going to be putting this bill on a credit card, or using student loan money to pay for it—two things we might have done in the past.

When we promised to stay out of debt, Katie and I also decided that we’d need to setup an emergency fund that could save our butts in moments where debt seemed like the answer to a dire situation.

For us, that emergency fund is about 5 months of expenses. That means we could theoretically live lean and survive long enough to get our feet back under us in the case of job loss or a major emergency. After we got out of debt, we went all-in on getting this money saved up so that we could feel peace again.

With our emergency fund in place, we didn’t have to feel totally stressed out when our car broken down on the side of the road. We knew that one way or another we’d easily be able to cover the costs of this unexpected surprise.

We’ve learned that regardless of how much we plan, and prepare, life’s always going to have some surprises that we can’t predict or avoid. Whether it’s a car dying, the loss of a job, finding mold in your basement, or an illness. Surprises will come. But the good news is that although we can’t remove all of them, we can minimize the impact of those surprises on our finances.

How about you?

How often do you find yourself caught off guard with a “surprise” that could have easily been planned for? Do you know how you’d pay for a repair if your car broke down this week? If you lost your job, how long would you be able to survive unemployed?

These are all legitimate surprises that we may not always be able to predict, but that we can prepare for. Here’s what you can do today:

  1. Take note of all your recurring expenses that have lump-sum payments
  2. Consider turning as money of those as you can into monthly expenses, so you don’t have to make promises for the future
  3. If there’s any lump-sum payments left after #2, put each of those in some sort of reminder app or calendar, but make sure you set them up to remind you the month before they’re due, so you can easily plan how you’ll pay for them
  4. Consider what your plan is for major emergencies like job loss, or serious illness, have a strategy for how you’d handle that situation if it ever came up
  5. Start executing on your plan from #4, don’t wait until it’s too late
  6. Enjoy a little more peace in your life!

Have a happy day! -Conor