Murphy visited my house again… this time it was my car on the way home. And I was able to turn what might have been a financial catastrophe into an inconvenience instead!
I have now been doing a written budget for more than 2 years and am faithful at following what has been written down.
Not only do I keep a detailed written budget (and track expenses against it), but I have set up my Baby Emergency Fund. For my side business, I keep a prudent reserve in my operating account which I usually use as a hill and valley account for slow months when I know I’m not going to receive income from a key pt job I have. That means that despite not getting certain funds in January and August, I still keep a fairly level cash-flow for all twelve months.
As I have become accustomed to the cash-flow, I have also started looking at potential cash-flow challenges, that is crises that I need to anticipate before they hit.
I recently started a car-repair/replacement sinking fund of $100/month because things happen, and I’m on the road a lot.
I was also told that my furnace is going to need replacing so I had also set some bonus money aside to start that as well. I haven’t taken any payroll money to put into that account…
I also realized that I needed an additional line item in my budget that doesn’t show up on some software… roadside assistance. A tow can be costly. I enrolled in AAA.
Here’s how I avoided a catastrophe… by telling my money where to go!
Wednesday night, on my way home from work, the clutch went on my car. I had to get towed, and the shop told me that what the damage was. It was nearly $3500. My car is worth about that amount, but the car I have is known to go for over 500K miles… so repair it is … Major catastrophe, right?
Cost of AAA $50…
Cost for the tow without… $125, yup, that investment saved me $100.
Amount in my car repair fund…$700
Amount used from my side gig reserve…$1000.. that is the money I hold back for a rainy day in my business…
Amount in my furnace account… $2000
Yup, in Baby Step 2 and able to cover what could have been catastrophic. (This refers to Dave Ramsey’s Baby Steps in which we pay down all our debt with gazelle intensity).
Guess what?? I still have my $1K starter Emergency Fund!!
I still have about 3 months management reserve in my business account, after “paying myself and sliding taxes into the tax account.” That amount will cover the cost of the business for 3 months, even if nothing comes in.
Budgets work if you work them!!
Side Lesson learned when paying off this kind of repair…
Debit cards have daily limits on them. Mine is around $2500. That limit is to protect the account holder. However, there are two ways around the limit. First, you can do part of the purchase as an ATM (PIN) purchase and the other part as a credit purchase – which would raise the limit to $5000. However, you need to check with the vendor first to be sure that they can run the card both ways. The repair shop could not. The second way is to go to the local branch of the bank that issued the card. They can raise the purchase limit manually… The downside is “what if you’re out of the area and you’re not with a national bank?” I guess the answer there is make sure to have some cash handy for emergencies on the road. I actually ended up going to the bank and getting the money… which is also a good practice. It’s good for us to physically feel the money leaving us.
The Good News:
Christmas won’t really be slim for a couple of reasons. First I planned for an expensive ’emergency.’ Second, I just landed two sided engagements that will allow me to recover the much of the costs incurred with the repair which will help me to build up my reserve.
The steps work if you follow them correctly!!
If you haven’t done a budget or don’t have an emergency fund, and want to learn how to avoid a financial catastrophe, give me a call, and I’ll set up a complementary consultation with you!