When I ask clients to list categories of spending, they’re real quick to offer food, shelter, clothing, transportation, education, travel, entertainment, and a few others. But there are two categories no one ever mentions, and I think this helps explain why you’re in debt.
Unexpected Expense #1: Repairs
When I see that people have credit card debts, I ask why. And they often reply with something to the effect of, “Well, the car broke down. It cost $800 to fix. As soon as I get out from under that, I’ll be okay.” And they work real hard and they pay off $100 a month until they get rid of that bill, and guess what happens next? The roof leaks. Or their son falls on the playground and breaks his arm. Or the washing machine dies. Let’s face it: Life happens. Yet when things happen, people feel shocked, as though they didn’t know things happen.
If you think occurrences like these are unexpected, you’re deceiving yourself. Things are great until the car breaks down. Things are great except you owe $500 in taxes. Things are great until the basement floods. Things are great until the next thing happens. Time, a great physicist once said, is just one damn thing after another.
You just bounce from one crisis to another, like the guy who’s always losing 10 pounds. He loses 10 pounds but then it’s Thanksgiving. So in January he loses 10 pounds again, then it’s Easter. Afterward, he loses 10 pounds, and it’s Father’s Day. He loses 10 pounds and goes on vacation. It’s just a vicious circle, and we find our debt clients running round and round all the time. They’re constantly going from “I paid off my credit cards” to “I owe $2,000” because they don’t recognize that expenses in the unexpected category occur all the time. While it’s true we don’t know what the expense is, when it will occur, or how much it will cost, we should acknowledge that something will occur—and it’s going to cost us money.
This is why you can’t track your expenses for just one month. You must do it for six months because you might go several months without an incident. And if you have a crisis that costs you several hundred dollars every four or five months—and you do, as tracking your expenses will reveal—you’ll learn that you must set aside enough money on a monthly basis to prepare for it. So set a new category for yourself called UNEXPECTED.
Unexpected Expense #2: Gifts
Haven’t you heard of Christmas or Hanukkah? Every December, people are overwhelmed by the money they spend on presents. Then they get to January and say, “Thank goodness that’s over,” and they spend the next six months paying off the bills. Come November, they get shocked all over again.
It’s easy to prepare for the costs of gift-giving: Just look at last January’s credit card bills and checkbook—because you’re going to do it again this year! And while we’re on the subject, does anybody you know have a birthday? If you’re not anticipating birthdays, anniversaries, graduations, confirmations, weddings, births and other milestones in the lives of those you love, you’re just adding to the “repair bill crisis” that is certain to hit you.
Control Yourself
After completing their six-month review, many people show me their results and lament all the money they spend on gifts. “But I’ve got no choice,” they say. “I’ve got a large family and we’re very close,” implying they are forced to spend hundreds or thousands of dollars every year.
Nonsense. If you are deep in debt, you have no business spending money you don’t have on gifts that people don’t need. You can bake cookies or rely on a hobby to make them a gift. Write a check to the American Cancer Society and tell the family that you’ve done so in their name.
Do you think I’m being cheap? Hey, I’m talking about survival here. If you were rich, yes, I’d say you were cheap. But since you’re broke, I’d say you are prudent. And if your family—the people who know you best and love you most—can’t support you in your efforts to improve yourself financially, then shame on them.
Have you ever heard the phrase “the rich get richer and the poor get poorer?” It’s true, because the rich keep doing the things that got them rich, while the poor keep doing the things that got them poor. But you’re not poor, you’re just broke. And although you’re broke at the moment, that will change because of your desire and your effort to change.
Ric Edelman is Founder and Executive Chairman of Edelman Financial Services, LLC, a Registered Investment Advisor, and an Investment Advisor Representative who offers advisory services through EFS and is a Registered Representative and Registered Principal of, and offers securities through, EF Legacy Securities, LLC, an affiliated broker/dealer, member FINRA/SIPC.
From the book The Truth About Money (Fourth Edition) by Ric Edelman. Copyright ©1996, 1998, 2000, 2004, 2010 by Ric Edelman, Edelman Financial Services LLC Reprinted by permission of Harper Business, an imprint of HarperCollins Publishers.
