Unexpected financial issues can derail long-term savings goals
Americans credit card debt has just hit a disturbing record of $1.02 trillion according to the federal reserve.
It’s still frigid in most of the United States which means one thing — treadmills are getting their annual winter beating. Millions of Americans are running in place in basements, health clubs, and small rooms in hotels which are dubiously called “The Fitness Center.”
Minute after minute, mile after mile, runners are going nowhere. And no one has a problem with that because there really is no other option which doesn’t involve frostbite or more layers than a Super Bowl appetizer dip.
The “dreadmill” is the only real choice for people who want to run forward. And that’s not necessarily a bad thing. Sometimes it’s OK to run in place, no matter how defeated or frustrated you might feel.
As much as you’d like to relentlessly progress forward toward your financial goals and aspirations of stability and success, there are periods of your financial life in which you will go absolutely nowhere. And that’s OK. Your life, including events in and out of your control, may present you with a challenge which supplants goals with immediate priorities.
Do you hear that sound? It’s the sound of your furnace not blowing (or, more accurately, the lack of sound). The problem is that your furnace should be blowing and it will cost $6,000 for a new furnace. You don’t have $6,000 and you’ve just started funding your primary financial goal (paying off your student loans) more aggressively. The interest rate on your furnace is about 7%, while your student loan rate is closer to 4%.
To compound the issue, the furnace loan is amortized over five years, which means the payments are relatively hefty compared to your recently increased student loan payment. Not only does this frustrate you, but it kills the momentum you’ve recently gathered.
As difficult as it might be to do, you need to be OK with your goal derailment. You have to see it for what it is. But more importantly, you mustn’t see it for what it isn’t — a failure. Sometimes the urgent expenses which pop up can last months, and sometimes they can take years.
Do you know who almost always runs on the financial treadmill? Parents of pre-school children. As if there aren’t enough challenges with the cost of childbirth, raising a child, and preparing for the financial difficulties of a future college education, there is daycare to deal with. From what I’ve observed and experienced, parents are spending well in excess of $10,000 per year for the years leading up to kindergarten. Talk about running in place.
Getting frustrated is frustrating and feeling defeated is defeating, but there’s a much bigger problem when your immediate priorities require you to waylay your goals.
You can get lulled into complacency while you’re dealing with the “now,” which means you won’t necessarily jump back into funding your primary goal once your more immediate need is resolved. It happens all the time, especially when parents are finally able to eliminate daycare expenses. Instead of putting that money back toward a goal, it gets re-allocated into lifestyle expenses.
London-based psychologist Hélene Fermont says that you shouldn’t feel guilty about keeping your bank account a secret.
There are two particular pieces of wisdom to discover here.
First, don’t get so frustrated by the urgent expense need or beat yourself up over something you can’t necessarily control. Could you have done something to prevent the seemingly involuntary expense? Arguably. But it certainly isn’t worth arguing about now. Get through the expense with your eye on the last payment.
Second, take immediate action once that immediate expense is finished. New parents should recapture money when the days of formula and diapers are left behind. Take that $150/month and re-engage it with the goals it was originally associated with. And when daycare costs end, slap that $1,000+/month back to your goals immediately.
Don’t take a breather. Don’t think about it. You’ve just made your way off the treadmill. Run.
Peter Dunn is an author, speaker and radio host, and he has a free podcast: Million Dollar Plan. Have a question about money for Pete the Planner? Email him at AskPete@petetheplanner.com