When Things Do Not Go According to Plan
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It happens to all of us, right?
We plan for an event. It could be anything from a wedding to a night out with friends, to a vacation or a family dinner.
Then despite all the planning something goes wrong and things don’t go according to plan.
Of course, nothing went as planned in 2020 so that doesn’t count.
I constantly read personal finance blogs. I like to know what other people are recommending.
Some financial blogs are written by experts and some by “non – experts”. What they all have in common is the plan they lay out for you.
The plan is simple and goes like this:
- Build an emergency fund.
- Pay off credit card debt.
- Have a budget.
When you have accomplished the first three items then and only then start investing.
What this says to me is: If you try to follow this plan, you will never invest.
This is where financial advice in theory cannot match what happens to us in real life.
You built the emergency fund. Great! Then what happens ? The emergency. And you are back to square one building the emergency fund.
You mostly pay off your credit card debt and you are sticking to a budget.
Then what happens? The unexpected. You need to use the credit card, good thing you have it, and your budget goes off track. Back to square one paying off credit card debt and staying on a budget.
Any thought of investing is put off.
The three-step advice plan becomes circular. And if you continue to follow it, it is a sure-fire way to keep you out of the markets.
What we know from experience is that planning involves moving parts. It is the same for your financial planning, it is perfectly okay to have moving parts.
You do not need to accomplish Steps 1, 2 and 3 before you take step 4 to investing.
Let’s look at the plan from a different perspective.
Build an emergency fund:
Think about splitting up the money you are using to build the emergency fund between a savings account and a brokerage account.
I set up an automatic transfer from my savings/checking account to my brokerage account. Now that I can buy fractional shares, I invest the money in the brokerage account. Overtime, it can become a meaningful amount of money. I am saving and investing at the same time.
Pay off credit card debt:
I don’t like the term “pay off”. I prefer to say “pay down” credit card debt .
In the real world, I think anyone who has a credit card has a balance due. It’s how we live.
The easiest way to pay down credit card debt is to stop spending. When you stop using the card as if it is free money, the balance(s) on your card will begin to drop.
Try using a debit card from your checking account instead. The pain is real when you are using “cash” instead of borrowed money to pay for things.
The more you decrease your balances, the more available credit you have in case of an emergency.
It is another way to build your emergency fund.
Have a Budget:
Another way to think about a budget is to look at what you need to spend money on and what you can stop spending money on.
I’m working on that right now. I have way too many subscriptions to channels I never watch. Some channels I subscribed to, only to watch one show.
I’m over it now. Each subscription didn’t seem so expensive at the time but when I added them up, I decided I would rather spend the money on something else or not at all.
Having a budget is more about being aware of how you are spending money rather than slicing and dicing your income into exact percentages.
Anything you stop spending money on is money for your emergency fund .
Use that extra $14.99 towards your credit card debt.
Or you could give 2 subscriptions to The Modest Economist as gifts!
The point is this : Do the best you can. Put whatever you can towards an emergency fund, pay down credit cards, have a budget in mind, always invest. Having a plan isn’t about doing one or the other.
Don’t take yourself out of the investment world trying to follow an exact plan because as we know, things do not always go according to plan.
This is an article I found to be quite helpful and well written.
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