One of the most routine problems people face in their personal finances is not having a budget. Hopefully, you’ve read our article on budgeting and have already cleared this hurdle. The next step is tweaking your budget to ensure it is sustainable. I’m sure you are all accustomed to seeing sustainability discussed in terms of the environment.
We’re essentially discussing the same concept in terms of your personal finances. Instead of water, oil, timber, etc. as an environmental resource we’re talking about your personal resource, specifically money.
Most people run into problems through a failure to plan for infrequent or unusual expenses. for instance if your automotive insurance premium is payable every six months then your budget during two months per year must be able expand to make that payment. If your cash flow is not strong enough to withstand these types of issues your budget will not be sustainable. You will have to borrow, or even worse use your credit cards to meet your obligation. For this specific instance I recommend establishing a monthly billing cycle with your insurance company or, for those of you with a higher degree of discipline, budgeting 1/6 of the premium amount into each month’s budget and parking that amount in a no-fee savings account so that the cash is in place when the premium is due.
Additional pitfalls include automotive or home repairs or any other type of inevitable, but unexpected expense. We all hate when soemthing goes wrong and costs us money (typically at the worst possible moment), but things do happen. So as smart, successful people we’ll need to be prepared. Unfortunately, the only way to guard against these types of circumstances is to save an emergency fund. I recommend saving 150 percent of your highest deductible. Be sure to include your monthly savings as a line item in your budget. In short, things happen but you can prepare yourself and ensure you are in a positive financial position to handle any circumstances that may arise.
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