We had a great financial plan for the first half of 2019. Or so we thought. After aggressively paying off debt through early March, we finally paid off everything except for our first mortgage! It felt great! Our next step was to put all of our monthly excess cash flow into replenishing our emergency fund which we depleted in order to pay off the debt fast. Unfortunately things didn’t go as planned…
The issues arise
As anyone who lived through winter in Minnesota this year knows, we had an incredible amount of snow throughout February and early March. Following that we had a bunch of rain in mid March as temperatures warmed slightly. The combination of melting snow and excessive rain are not a great combination for an old house on a small lot with no sump pump. The result: a flooded basement. We didn’t get too much water: just enough to get the carpet wet and ruin the pad underneath in spots. This resulted in several days of fans blowing to dry things out and replacing the padding with a band-aid fix for $25 until we could further assess next steps.
I’ll be honest here, I was initially quite upset when this happened. My plan should have worked! What went wrong? After a few days to process the situation I began thinking of how to correct it and move forward.
All of this got me thinking back to the importance of having flexibility in your financial plans. Things will rarely turn out exactly as expected. Over the years, we’ve developed a method to help “plan for the unplanned”.
Here are a few tips for handling the unexpected:
- Have cash on hand for small emergencies (or at least the excess cash flow to absorb them). As I mentioned above, we depleted most of our existing emergency fund in order to pay off debt over the past few months. We see this as a short term solution for a long term gain in the future. Also, we already had excess cash flow each month before the debt pay down strategy began and the excess cash flow is greater now that we no longer have two other monthly payments we had before. This is one of the major benefits of having fewer “fixed” costs: small emergencies can be easily absorbed into the budget.
- Proactively address potential issues that could arise and/or seasonal expenses. When we first moved into our house, we would only budget for the minimum to keep things up and running from day to day but didn’t really plan ahead. This was partially due to the budget being tighter in general, but also partially due to ignorance. Small issues or one time events (attending weddings, birthday parties, car repairs, etc.) would always be things that would throw off the budget for that month. But after awhile, we started to proactively plan for things we knew would come up in the future. We added more to the “car budget” to address future car repairs and planned to repair things around the house before they broke completely and needed to be replaced immediately.
- Have flexibility in your budget to reallocate spending as needed. Originally, we planned to do a minor kitchen upgrade this year to “refresh” our look given that we’ve been in our house for over ten years. However, this is more of a “want” than a “need”. So when the basement leaked and ruined part of the carpet, we are now considering using some of that kitchen budget to get new carpet (it kind of needs to be replaced anyway). Having the option to move money between budgets helps provide additional flexibility to handle some of life’s unplanned expenses. Very few things that “have” to be done ASAP so most expenses are fungible enough to be moved back a few months or years. Consistently reassessing your budget is a good way to ensure you are spending money on the most essential items first.
We are still determining exactly what to do with our “house fund money” for this year. Knowing that we have the money available and the option to decide eases my mind. I encourage everyone to try to get over the initial anger of an unplanned issue and try to look at the bigger picture and how you can address it.
How do you handle unplanned issues within your budget?
