The Rule That Helps You Avoid Living Paycheck to Paycheck
It has the power to completely transform your money situation. I know that sounds a little like infomercial-speak, but stay with me (because it's not).
It's all about thinking long, and acting now. It lets you get a grip on what's coming so you're not stuck holding an empty bag when you need money later. What's coming can be anything from a bill to a big life goal. Think long, act now, and you'll have the money for all of it.
"True expenses" are not just the regular, monthly expenses that you need to keep your life running. When I talk about embracing them, I'm specifically focusing on the infrequent expenses that tend to sneak up on us, but to be clear, your true expenses are ALL of your expenses—the daily, the monthly, and the irregular ones that we often forget. The concept of "true expenses" helps us see that what we usually think of as our expenses don't capture the full picture.
Infrequent expenses generally fall into two camps: Predictable, and Unpredictable but Inevitable.
Your predictable expenses are, well, predictable. Although they take many people by surprise, we all know exactly when they're due and how much they'll cost. Or at least, we all have access to this information if we bother to pay attention. Car insurance premiums are one of the biggest offenders here. You know the feeling when that huge bill hits your mailbox. It's always the last thing you expect, and it feels like you just paid it...oh, wait...six months ago. You often have no choice but to throw it on a credit card, or reluctantly write a check using money you'd hoped to spend on something else.
Now imagine how you'd feel on the day your $600 insurance premium is due if you'd saved $100 a month over the last six months. You wouldn't flinch. There would be no stress around it at all. In fact, you'd probably feel pretty happy and proud that you can just pay your bill and move on. You'd remember the times when facing a bill like this was stressful—and that memory would make the good feeling even sweeter.
Other predictable expenses don't have a set amount, but we still know exactly when the spending will happen, so we can plan for it. You know your shopping will spike in December. You know the AC will bully your electric bill in summer and your gas or oil bill will soar in winter. You know you'll need a good chunk of money to fly the family to Grandma's for Thanksgiving. And you know the postholiday dread that comes with your bloated credit card statement. It's always stressful.
It may sound crazy to start saving for holiday shopping in February, but think how you'll feel when that lump of cash is just sitting there in December, waiting for you to spend it guilt- and stress-free. The same goes for any bills that jump at certain times of the year. Future You will be so happy with Past You for thinking ahead and putting a little aside all year.
Your unpredictable but inevitable expenses, on the other hand, are the things you know you'll need to spend money on at some point—you just don't know when or exactly how much. These are a little more of a wild card compared to your predictable expenses, but they're not as erratic as we tend to believe.
Think back to any time you've looked at your credit card statement and decided that your huge balance was just because of "an especially crazy month." Maybe your surprise charges looked something like this: A gift for the wedding you attended, that GoFundMe donation for your coworker's daughter, a new tire after you drove too close to the curb to avoid that pothole (both came out of nowhere!), and—gah!—a last-minute outfit for that wedding because your old one is two sizes too big (the only downside to hitting your weight loss goal). None of your spending was unreasonable or irresponsible. Some of it was even generous and kind! So you brush it off as an unusual month and promise next month will be better.
Next credit card statement: supplies for a science fair project, a copay for an x-ray after you tripped barefoot over a bike in the garage (don't go barefoot in the garage), printer ink so expensive it should be illegal, surprise surgery for the family cat. Another crazy month, but that's okay. Really and truly, next month will be better. Next month will be regular.
You know how this ends. It never gets better, because it's not an "especially crazy month." It's just life.
Those surprise expenses are what stop most people from budgeting. They feel it's impossible to plan for the unplanned, so why bother?
Here's the thing: many of your surprise expenses aren't surprises at all. Look at your life from a broader view. You know tires don't last forever (set something aside each month for auto maintenance). You know your fifteen-year-old cat is bound to have medical problems (fund your vet category when she's healthy, too). You know you're a softie for any fund-raising campaign in your Facebook feed that involves kids (treat yourself to a "giving" category). These charges aren't flare-ups in your spending. Yes, they're unexpected in the moment they hit, but they're inevitable, which means you know they'll surface at some point. They're true expenses—and you can plan for them.
Predictable or not, you can get a pretty strong hold on your true expenses just by looking at some past credit card statements. Maybe this will be painful for you, but it will be worth even a quick skim to pick up on important patterns like the frequency of your vet visits, charitable giving, or infrequent bills. It's also a great chance to reinforce your priorities. If you cringe with every pizza order you see, use that frustration as ammunition to align your spending with your goals moving forward. This isn't about dwelling on the past—you're just peering at it long enough to fully understand where your money is really going (and where you might want it to go instead).
From the book You Need a Budget: The Proven System for Breaking the Paycheck-to-Paycheck Cycle, Getting Out of Debt, and Living the Life You Want by Jesse Mecham. Copyright © 2017 by Jesse Mecham. Published on December 26, 2017 by HarperBusiness, an imprint of HarperCollins Publishers. Reprinted by permission.