Try as we might, we can’t predict and avoid every challenge that comes our way in life. This is true whether we’re talking about our health, career, relationships, money, or anything else. But this doesn’t mean you should bury your head in the sand and refuse to accept that trouble could potentially be on the horizon. It also doesn’t mean you should let fear and anxiety rule your every move. It simply means that you would be smart to recognize the reality that stuff happens to all of us; and when it comes to our finances, there are smart things we can do to prepare and protect ourselves.
In the first article in this series, How to Face Financial Stress with Courage and Confidence, I discussed the ways in which financial stress can affect our health and our relationships. In the next article, Why You Need to Start Talking About Money, I shared tips on how you can start to reduce financial stress by having honest and open conversations about your personal finances.
Then I followed up with a piece on Getting Real About Your Personal Finances.
Now, let’s talk about the importance of facing facts.
Facing Facts or Wringing Your Hands?
See if you can relate to this scenario.
You are leaving next week for a fun trip to the Great Northwest — somewhere in Oregon or Washington State. Everyone knows that the tradeoff for enjoying the breathtakingly lush green landscape is that it tends to rain a lot there, right? So as you are deciding what to pack, what do you do?
Do you tune into to the Weather Channel two to three times a day to see what the forecast says?
Do you anticipate rain, so you just pack a raincoat and not worry anymore about it?
Considering the prevailing weather pattern for that beautiful but dreary region of the country, let me save you some time – it’s safe to say there’s going to be a chance of rain.
Often, we treat our personal finances like the guy who keeps checking his weather app, expecting that tapping refresh repeatedly will somehow change the weather forecast. We spend more time and energy watching predictions and financial forecasts than we do preparing for what’s — in fact — going to come.
Anticipate Financial Challenges So You Can Be Prepared
The truth is, we all need to anticipate so-called “unexpected” expenses and financial challenges. They’re an inevitable fact of life. You’ll get a flat tire. Your fridge will go on the fritz. Your cat will need a trip to the emergency vet. You’ll get laid off. It will rain on your vacation to the Great Northwest.
The rain will come, so it is best to have the raincoat for when it does. If you have an emergency fund set aside, the rain will feel more like a minor inconvenience or sprinkle than getting caught in a storm with nothing to protect you.
Assess Your Current Situation
Start by taking an honest look at your household expenses. If you think I’m only referring to monthly bills, think again. Look at the big picture and consider all of the added costs that will hit in the coming months and years.
If you can’t remember the last time you replaced your roof or hot water heater, don’t be surprised when something springs a leak. If your trusty Honda is older than your first grader, don’t feel like it has betrayed you when the check engine light starts glowing on your way to work. If your beloved elderly family members live several states away, it’s a sad reality that you’ll need to take some not-so-fun road trips to say your goodbyes.
All of these things are easily predictable, but we often treat them as if they’re an unexpected financial burden simply because we didn’t prepare.
Change the Way You Think About Financial Challenges
It’s not always an emergency either. Perhaps your living room furniture is looking terribly worn and tattered and you come across a “going out of business” sale at your favorite local store. But you have to pass up the perfect couch and loveseat deal because you don’t have the cash, even though you bought your last set ages ago. You’ll end up paying far more down the line, all because you ignored the inevitable — the furniture will need to be replaced one day soon.
Think carefully about what your real expenses are and what you can expect, because the rain will come. But it doesn’t have to be all doom and gloom if you are prepared. All-too-often, especially among the middle and upper-middle class, the people who find themselves under the greatest financial strain are those who are in denial about what their true expenses are. They overspend on the unnecessary and it comes at a great cost.
Shifting your perspective about what is “unexpected” is an important step toward creating a realistic budget, cutting back where you can, and reducing financial stress. To feel more financially secure overall, a good rule of thumb is to set aside three to six months of living expenses. Each time you have to dip into it, be sure to replenish the account as soon as possible. Knowing the money is there if you need it will allow you to weather the storms.
Hiram “Chip” Hutchison, III, is the President of Hutchison Group, Inc. (HG), a fee-based, independent financial services firm assisting clients in and around Rock Hill, South Carolina. Chip drives strategies designed to better enrich the client’s experience, resulting in a deeper client relationship and a broader understanding of client financial needs. HG has been offering personal financial guidance for more than two decades. Learn more about them at hutchisongroup.com.