One Money Design

Doesn’t it feel great when things are going well financially? Maybe the expenses are being met without much difficulty, you finally have your finances organized and are living on a plan. Goals are starting to get achieved.

Unexpected expense

BAM! What was that? Yep, it’s that dreadful unexpected, unplanned expense that interrupts your financial peace. I’m not talking about an emergency expense either. It could be little Suzie’s dance lessons you had no clue would be coming up this fall because you had no clue Suzie would like to dance this fall. Or maybe it’s Aunt Tootie who is finally having everyone in town for the family reunion. The only problem is that it requires a $400 plane ticket to get to Aunt Tootie’s house across the country.

Expenses have to be managed

These unexpected expenses are life. Even the best planners are surprised by them all the time. As a software project manager, no matter how much effort I put into the planning, something of the unexpected is probably going to come up somewhere along the way that could potentially impact the timing and cost of the project. That something has to be managed properly.

Project management basics will tell you that something has to change within the constraints of a project (scope, cost, and time) to accommodate the change. The constraints all impact each other and you must operate within them. If scope changes, cost and time are impacted. For example, if you add a significant element of scope to a house building project (new room), the time (more building time) and cost (labor) of the project will change.

Personal budget constraints

A budget, or spending plan has constraints you must work within as well. Simply put, money is coming in and money is going out and these amounts should balance. If income increases, there is more money after expenses which is a surplus. The surplus should be allocated to something (savings, little Suzie, etc.). If expenses increase, as is the case with the unplanned expense, and income does not change, there is less money after expenses or a shortage.

The point is that something must change to keep the budget in balance because of the additional expense. Income must increase or expenses must decrease to accommodate it.

Sacrifice, cut, or put on hold expenses

So, what do we do when Aunt Tootie invites the family across the country or Suzie wants to go to a dance lesson? Well, I’m probably not going to be heading out for a night job right now given everything else going on, so a serious expense discussion has to take place. Everything is on the table. We sacrifice, cut, or put on hold expenses. And if that can’t be done, then the unplanned expense is reevaluated.

Why not put the expense on a credit card? Well, we might do this if we know the money will be available within the month of the purchase, but honestly, you can never really count on your income 100%, so we don’t like to do it even if we’re a few weeks away from receiving the money.

Biblical financial principle of surety (avoid credit card usage for unexpected expenses)

There is a Biblical principle called surety which is an obligation to pay without a sure way to repay. Here is what Crown Financial Ministries says about surety.

Unfortunately, most debt in America is surety – with inadequate collateral to satisfy the loan agreement. Debt is not the same thing as credit. Having credit means that, as a borrower, you have established a mutual trust with a lender. However, undisciplined and excessive use of credit can quickly lead to debt.

Today, regrettably, almost anyone qualifies for a credit card, even though the limit may be minimal. The problem is that many people use a credit card as a never-ending supply of unseen money. Too often, people find something they want to buy and these plastic cards are pulled out as fast as an Old West gunslinger, as if they will magically produce cash — but they won’t.

The point being, credit or debt should not be a short cut around a budget constraint. The use of credit can often lead to excess debt. What may seem like a few minor uses of the credit card can begin to cause trouble if income is reduced because of job loss or an emergency expense occurs.

It’s far better to operate within the constraints of your budget versus the risk of debt which brings with it a far greater headache than the expense itself.

What experiences have you had with unexpected expenses and how do you manage them?