Fiscal Fitness September: WHEN, Not If You Need That Money

Love The Zero

It rains regularly.

Are you financially prepared for it?

A beloved member of the Crittenden family died recently. A few years ago, I would have handled this in a couple of different ways.

I could have felt really sorry for myself that I just couldn’t get back to the East Coast for the funeral, since I didn’t have any “extra” money. This had the effect of having me feel separate and powerless. It also had me live for the future, when I knew somehow I’d be able to afford things like this. (I just had no plan for how that would happen. It seemed like that should just happen over time, right?)

I could have also righteously just put the last-minute flight on a credit card. This is where I could really get creative with rationalizing that I didn’t have a choice. I didn’t have the money, so what else could I do to make the trip happen? I’m sure I will figure out a way to pay it off, once I get there for the funeral…and then get back home…and then try and work harder to make the extra income..but then I’ve been working so hard, that I really need to treat myself………..and then I’ll figure out next week how to pay off the flight and the post-flight splurge. I’ll figure it out. (How? When? What, specifically, is going to change?)

Having an emergency fund put aside makes all the difference for me. I am super excited to save money for my Future Self. I enjoy investing and leaving it there. That is for the long run, so that’s not the money I’m talking about when I say emergency fund. I won’t touch that longterm savings until I absolutely need it. In addition to that, I’ve been taught and follow the approach of building and maintaining an emergency fund in a bank account. Money that I can spend on relatively short notice, which creates flexibility for me as well as has me avoid ever having to debt.

This time was a great example, when I really did need to get to my family. That money wasn’t in my plan for the month. I don’t have the wiggle room in my YNAB plan to cobble together a last-minute cross-country flight. But that money was in my emergency fund, so I was able to pay cash for it and then focus on showing up and being present for the trip.

Behavioral finance studies are guiding us on how people can get this emergency fund together. Research has shown that we literally do not recognize our future selves. It’s not intuitive to take money away from my current self, who I know very well, to sock it away for this Beth in her 50’s and 60’s who isn’t even guaranteed to exist as far as I know! This practice of saving for the future rarely happens without a game plan for how much I want to save, where I want to save it, and what am I willing to delay gratification on to make it happen?

Visibility to other people can make a huge difference! Sharing your savings plan with at least one other person, and making a visual aid for yourself, has been shown to double the likelihood that you will reach your savings goals. Here is a neat site from folks at Yale who want you to reach your goals: http://www.stickk.com/