Drama-Free Emergencies and Stress-Free Fun with Your PFM
February is the shortest month, but it has a pair of what we call “sneak-up events” in it.
These are events like Valentine’s Day and the long President’s Day weekend that tend to catch you by surprise, since they usually sneak up on you and aren’t likely planned for in your budget. These tend to be the places where all your good budgeting and savings goals take the biggest hit.
You either drop these on a credit card or do some quick transfers out of savings to cover them. And that’s why many consumers’ savings turn into a short-term cash stash rather than a long-term nest egg or emergency fund, or their credit card balances never get paid down.
In most people’s case, “emergencies” like these budget tugging events make saving hard.
According to personal finance site Bankrate.com, 29% of consumers have more credit card debt than they do savings. That number has grown nearly 50% since the same question was asked last year.
It has also been reported that 60% of Americans don’t have $1000 cash on hand for an emergency room visit or a major car repair. And while wages have been growing, “real” wages (accounting for inflation and cost of living) have declined 1.3% since 2017, according to salary comparison site Payscale.com.
And that’s why 7 million vehicle owners in the US are 3 months behind on their car payments.
This chart gives you a good idea of how most people manage these cash crunches. And none of them are sensible, sustainable long-term solutions.
Many people are waiting for their tax refunds to pay off this accumulated debt, but this year, refunds have been slowed by the government shutdown, and they’re also averaging almost 10% lower than last year. Plus, many people see this more as “fun money” than a way to build a long-term financial strategy.
But there is a way out of this, aside from declaring bankruptcy, or changing your name and moving to a cabin in the woods, or winning the lottery. And it’s already at your fingertips - literally.
Setting up an emergency fund (i.e., a dedicated savings account you can easily set up with your bank or credit union) and adding it to your PFM can help you sock a little away every month, so the big and little unexpected things aren’t so daunting.
The name of the game is setting a little money aside over time, so it accumulates into something real and substantial. For example, instead of sticking Valentine’s Day on your credit card, if you were socking away $50 a week - slightly more than $7 a day - since January, you’d have your Valentine’s Day covered without reaching for your credit card.
Setting up budgets and spending goals in PFM is a great solution to help you do this. And you don’t have to itemize each event - keep it general at first, like Holidays, Car Maintenance, etc. - but if you are moving toward budgeting your money more strategically, you can truly enjoy the good things in life and take a lot of the stress out of the bad ones.