In the world of personal finance, one of the most persistently irritating things we have to face is working out how to handle those inevitable, big expenses that need to be handled every so often over the course of our lives.
These “big expenses” can take many forms. If you are self-employed professional, you may pay your annual tax in one lump sum at a certain point in the year. Or, if you’re buying a house, or even just a car, you’re going to be dropping a significant amount of money on that as par for the course.
Of course, that’s not even to begin mentioning emergency expenses that you hadn’t planned for.
Budgeting a little bit here and there for weekly grocery shopping, and a cup of coffee at your favourite café, is fairly straightforward. But here are some tips on how to take the sting out of those big expenses, so that they don’t end up forming a black cloud over your financial life.
Understand all the details of the expenses in advance, and expect them
Knowledge is power, or as the famous ancient Chinese tactician Sun Tzu once wrote:
“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”
Granted, your spending habits aren’t exactly equivalent to war, but not too far off. The first step in tackling those big expenses, is to know as much as you can about them. Do your research on topics such as what the transition tax is, for example.
With bureaucratic expenses, understand how much your eligible to pay, and consider the conditions under which you may be exempt. For consumer expenses, survey the lay of the land, and ensure that you’re getting the best “bang for your buck” when you make your purchase.
And just to fulfil the “know yourself” part of this equation; always keep a clear eye on how much money you have available, and on how your financial resources can be amassed and leveraged in order to cover your expenses.
Practice the art of patience – chunk down big expenses, and tackle them bit by bit
Fairly often, we get ourselves in trouble with regards to large expenses, simply because we are impatient.
To a large extent, this is the fault of the advertising industry, and the general short attention spans that are trained and developed via many of the rapid-fire, “click bait” elements of the modern web environment and digital world in general.
If, however, you can find it within yourself to resist the urge to place an order as soon as you see an appealing product, or get caught up in the advertising hype, you’re in a far more empowered position in terms of your ability to manage and absorb the expense effectively.
Unless you have a good chunk of disposable income already set aside in a budget category such as “fun money,” your approach to these expenses should – where possible – to be a delayed purchase strategy. In other words, just a saving up in order to buy the item, and only actually make the purchase when you got enough money amassed.
Avoid living on borrowed money courtesy of your credit cards, or overdraft.
Always save for the unexpected, just in case
So, the “elephant in the room”, as alluded to at the beginning of this article, is the fact that many large expenses just kind of “come at you” out of the blue, and have to be absorbed without warning, and without sufficient time for planning and strategising.
If the engine falls out of your car on the way to work (alright, a bit hyperbolic, but you get the point), it’s probably not going to be very practical for you to try and get by without the car for a period of several months as you begin deliberately filtering money off to a savings account, specifically dedicated to automotive expenses.
Nonetheless, it’s obviously a pretty bad situation to be in to have to unexpectedly spend a bunch of money you don’t have available.
The solution here is to always set aside a significant amount of your monthly income for “unexpected” expenses. That’s what your budget category should be called – “unexpected,” or something to that effect. And how do you stop yourself from using that money for fun activities whenever the temptation arises? Simple. But abide by the rule: “this money is only for emergency expenses I forgot about and didn’t see coming.”