Monday, October 21, 2013

How Can You Afford an Accident?

Regular readers know that I'm fully healed from an accident that happened a year ago. After a month with my arm in a sling, nine months in braces, and surgeries to remove and replace a broken tooth, I'm back to normal. And as of this month, so is my emergency fund.

Readers may not know that the accident set me back $7,000. Most of my injuries involved my teeth, and American dental insurance generally doesn't cover braces for adults or dental implants for anyone. Now that the cost of health insurance has dramatically gone up for some people to the point that they can't afford it, having some savings has become even more important. Having savings gives you some security. It'll also save you money over having to get a loan or using credit cards.

I thought about offering some money-saving tips, but those are easy to find, and my tips may not apply to everyone. Besides, it's not useful if you take the savings and spend it on something else. The real question is how to start saving money if you're not inclined to. It's not as hard as it sounds--as long as you're not truly in over your head with your bills, you can do this. Here are some things I've done to make it easy.

You don't need a budget. I've never had a budget because it doesn't make any sense to me. Even in a stable life, there's variation--one month, there might be several events you want to go to and the next month none. You might stay out of the stores in December, then pick up bargains in January. A monthly budget doesn't allow for this. What I use is...

The False Scarcity Method, aka the Pay Yourself First Method. First thing, you sock away some money into savings (or have your bank do it for you automatically), then pay your bills (automatically, if possible), then buy what you need (like gas and groceries), and enjoy whatever's left free of guilt. I also have an account I contribute to monthly for large occasional expenses like car and homeowner's insurance and property tax. This doesn't count as savings because for all intents and purposes, it's already spent. I contribute to my retirement plan as well.

What this gives you is an honest accounting of what you can spend on clothes, entertainment, restaurants, and so on instead of the wishful thinking that can make up a budget. Maybe you wish you could spend more. But consider the things you had to have a few years ago--do they still excite you every day, or do you want something new again? Even if you upgraded your phone or car or house more than a year ago, the excitement has probably worn off by now. It's called hedonic adaptation. In other words, every upgrade becomes the new normal.

Your peers who live more luxuriously than you may be using credit or getting gifts from family. If you're envious, stop and think: are you impressed with their stuff or their presumed accomplishments? Whom do you admire more, Ayaan Hirsi Ali (who probably spends most of her money on personal protection) or lottery winners (some of whom end up broke)? Maybe I have a odd sense of humor, but I'm amused on the rare occasion when someone finds out I have more than they thought. (One coworker thought I didn't have a car because I ride the bus.) I get a kick out of finding bargains and repairing things I own and watching others plunk down more money than I ever would on products made by companies I own stock in. But struggling to pay medical bills or even putting off care because you didn't save a few dollars every day is no joke. I've been there.

Maybe you think you deserve a new outfit or a night out (or a vacation or a new car). There's nothing wrong with those if you can afford them, but I prefer to think that I deserve a feeling of security and money in the bank.

Further reading: The Richest Man in Babylon


Lowcarb team member said...

As the saying goes 'I can see where you're coming from'

In these present times not all have security, and you could even question what do you call security? Sometimes it is not what it seems.

I think you've done well, and recovered well over these past months, and thank you for sharing your journey with us all.

All the best Jan

Lori Miller said...

Yes, security is relative. But a little security is better than none. Just a few hundred dollars can keep some people from losing their home or their car--in other words, becoming almost unemployable. It's tough to find a job without transportation and a permanent address.