Have you ever done something stupid that costs you money you don’t have? How did you pay for it? Did you place it on your credit card or use your emergency fund? The past couple of weeks I have had a major budget crushing accident that has been killing me.
I love to garden, it takes a lot of stress out of my life. Last year I felt like I had a great garden that produced a large number of vegetables and I wanted to have more. After a period of time, I sort of convinced told my wife I was going to add three more garden boxes to our back yard. The current box I had set up to have our sprinkler system water the garden so I didn’t need to go out every day to do the watering. With the addition of three more garden beds, I knew I was going to need to add a couple more lines to the sprinkler system. I had dug out the area around the sprinkler box and found the direction where the pipe was heading and mapped out the course on the new line. I rented a trencher to do the hard work and started down my path I had marked out to where the new pipe would lay.
The Uh Oh…
The problem . . .not even four feet into the job, we hit the first pipe. I figured it had to be the line that I took out the summer before, so we continued on. I think you can see where this is going. I hit three more lines and knew that I had just made a big mistake! I couldn’t even see where the pipe had been so I could just repair it. To make matters worse, I looked over at the hole where the sprinkler box was and saw that it was filling up with water quickly and I realized that I had busted up the manifold. What should have been a $50-65 dollar sprinkler job, now turned into a $500 sprinkler job as we trenched the whole back yard and laid new pipe. I knew it was going to have to happen soon anyway, but I wasn’t ready for it financially.
Now I am sure that you have experienced doing something stupid that costs you money. Maybe you were hanging a picture and punched a hole in a pipe you didn’t know was there. Or you were mowing the lawn and a rock shot out and smashed a window. And most of the time we pull out that plastic card to pay for it.
When we sit down to set up a budget, we begin by setting up a few categories. Over time, we probably have a number of categories set up to address the needs we have. Last week I mentioned the option to set up a sinking fund, which allows us to put money into savings to cover costs we know are going to happen within the year, such as car insurance. So another category that we can create which is very similar to the sinking fund, is the “I did something stupid” fund. So when my wife and I sit down to discuss our budget in the next week or so, we will add my new budget category. Now even though my wife may not agree, I don’t feel that I do too many stupid things, but I will feel a lot better not having to tap into the emergency fund to cover the costs for something stupid I did.
The whole idea to setting up budgets and putting money aside for the unexpected to happen is to prevent you from needing to put everything on the credit card or drain your emergency fund. If you are asking how to do this, just follow these simple steps to add a new category to your budget. (Disclaimer: Depending on what method you are using to create your budget, whether with software or paper, the steps may vary.)
- Pull out your budget and review your categories groups. You may find that you have an overall category that your “I did something stupid” fund will fall into. By reviewing your current budget setup, you will know where to place it.
- Add your category line into your category group. If you made the decision last week to create some sinking funds, you may want to create a category group to have all your sinking funds and your “I did something stupid’ fund all together in one group.
- Decide how much money will be allocated to your new fund. Once you run through the normal exercise of setting up your monthly budget, you’ll see how much money is left over. Remember, the best way to budget is to tell every dollar where it is going, even if you aren’t going to spend it right away. Determine how much money is going to go into each of your sinking fund categories. It may only be a few dollars or maybe $20 or $50, whatever it may be, don’t let there be any money left over to not know where it is going.
- Stick to your budget. Remember to stick to your budget. If you need to rob from one category, remember that you need to account for that from other categories so you don’t end up in the negative.
- Review your emergency fund. If you had to tap into the emergency fund to cover the stupid thing you did, like I had to with this mistake, be sure to get your emergency fund loaded back up. Half of our emergency fund went to pay for my stupid mistake, so I need to reload the fund back up to $1,000 as quickly as we can.
Now close your eyes and picture a few months or even a few years down the road. You just broke your sprinkler line or you were tossing the ball around with your kids and broke the window. Are you going to pull out the plastic to pay for it, or did you set up your “I did something stupid” fund and have some money set aside to cover the mistake?
If you set up your budget to cover incidents like these or others, your budget will be protected, or be less impacted than it normally would have. But why should I set up ANOTHER savings account or category in my budget that is different than the emergency fund? Within the budget, each category as a specific purpose. You allocate every single dollar to fulfill those purposes. You don’t necessarily need to set up a whole separate savings account at the bank to do this either. If you stop looking at your bank accounts to see how much money you have, and instead only look at your budget, then you will have just one account. You are just moving money from one category to another within your budget. When it comes to the emergency fund, think of that fund as a true emergency fund. When a real emergency comes up, if you used it for something that is categorized more as a sinking fund, then you will have nothing to cover your emergency. By setting up little pockets where you put your money, you will better protect the emergency fund for when the true emergency comes around.
Question: Do you have a “I did something stupid” fund or something similar? What are the reasons you set up the fund? You can leave a comment by clicking here.