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Monday Money Myth: I’ll hit my savings goal this year, if I just save $x per month, and never dip in

- in category: Uncategorized

Well, yes, you will.  But life tends to be a little more complicated than your average spreadsheet. The thing is: I bet you know all your regular expenses, almost to the cent.  Rent/Mortgage, utilities, food, car running costs, yoga class – you could list those costs without referring to your bank statement. And when those costs are deducted from your income – hey!  LOOK at all the money that’s left over.  That’s insane!  Why can’t you save $x per month and still have money left over for having fun?? Because of life’s complications.  The expenses that don’t come up every month.  But which come up again and again, forcing us to dip into our savings and miss our goal, making us think once again that we are “no good with money.” These complications go by the name Periodic Expenses.  And the first step to financial stability (and hitting your savings goal) is to be realistic about them. If you've gone to the trouble of setting a savings or debt repayment goal, do a little more work to make it more likely that you'll hit it.  List any predictable Periodic Expenses that you have – the boring ones like:

  • Taxes and rates
  • Insurances – health, life, income protection, car, home and contents
  • Car registration and warrant
  • School fees, uniforms, BYOD and stationery costs
  • Holiday care costs
  • Sports and Hobbies – e.g. fees and uniform costs

And the fabulous ones like:

  • Holidays
  • Big celebrations – significant birthdays or anniversaries
  • Concerts or sporting events

The next step requires an educated guess.  Have a think about the following items - you may need to pay for all or none of them in 2017.  The questions you have to answer for each item are: how likely is it?  And: what amount allowed for this item would make me feel comfortable?

  • Car maintenance and repairs - including tyres
  • New vehicle costs
  • Medical expenses
  • House repairs and maintenance
  • Appliance repairs and replacements
  • Sudden travel for family emergency

Once you have a yearly cost for each item, add them all up and divide by 12 to get the monthly amount. That’s the portion of your monthly income that’s needed to cover your Periodic Expenses.  If you're not already putting aside this portion every month, then that will explain why you can never hold onto your savings - they are paying for your Periodic Expenses. It is very possible that the monthly total you have for Periodic expenses may well be a scary amount.  More than you have left over once rent, food, and utilities are deducted. It’s OK, just breathe for now.  Knowledge is power. Next week: What to do when the plan shows that there’s not enough money.

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