Prepare for Your Financial Winter in Times of Plenty
We have summers and winters and good years and bad years. There are times when we have well paying jobs, we receive bonuses, we have extra opportunities to make money, the stock market does well, nothing breaks down and things look peachy. Then there are times when lay offs occur, a sickness in the family comes, a car (or 2) break down, prices go up all around and the stock market goes down. Whatever it is, chances are you’ve gone through something on both an up and down swing. The key to how you deal with the winters and bad years is what you do in the summers and good years.
Now, consider the huge numbers of southeast Michigan residents who are in a “down” cycle. How is this “save up for a rainy day” advice relevant at all to what so many area residents are experiencing right now?
The question that SavingAdvice blogger Cortni Marrazzo poses is: what will you do in the future when your financial fortunes improve, even temporarily? A snippet:
The biggest cash fall for some people happens to be their tax refund at the beginning of each year. I’ve noticed that usually the more the tax refund is, the quicker it’s spent on stuff. I would encourage anyone who plans to receive a large tax refund and doesn’t have at least 3 months of living expenses in an emergency fund to save a minimum of half of that refund and put it in savings. I understand some people need baby steps and that’s why I said half.
This is a plan worth considering when you get that tax refund, the overtime check, the bonus check, etc. And it’s similar to what my husband and I have done over the years with our big checks such as gift money, tax refunds and such.
On average, about half of our unexpected funds end up going to something “not fun” aka paying off a bill or catching up with routine expenses or parking it in the bank for emergency use later. The remaining amount is spent on something “fun,” something we otherwise could not afford or have on a “would be nice if …” list.
The bigger the available funds, the more particular we are about exactly where we spend that money, and the more discussions that will take place ahead of time on whether that is an appropriate use for that surplus.