Are Financial Setbacks Keeping You Away From Retirement?

I read through several personal finance blogs and more often than not there is this world that appears so far out of reach…a world in which nothing bad ever happens.  A world in which the author is consistently doing better and better month after month, year after year.  I sometimes wonder if I am just an unlucky guy, or if something else is going on.  I think this is a classic case of comparing my behind the scenes with someone else’s highlight reel. But….when looking back at my previous posts, I’m guilty of the same thing. I talk a lot more about positives than negatives. I think it’s just human nature. I want to work on fixing this to make sure people realize that I make mistakes too and have financial setbacks from time to time, we all do.

I remember sometime maybe 6 or 7 years ago I was having a conversation with my dad about saving money and I remarked that I was behind because for 4 of the last 5 years I had several large unplanned expenses.  My dad replied with something along the lines of…”and 10 years from now you will have had several large unplanned expenses in 14 out of 15 years.” Basically he was saying that unplanned large expenses are a constant.  You don’t know for sure WHAT will happen, just that something will happen.  It’s best to budget for the unexpected.  I think having a budget of $100 per week in the “Murphy fund” is a good idea.

In the past 12 years I have had the following setbacks:

  • Sold a house I purchased as an investment property for a $6,000 loss
  • Dental expenses for my wife ($10,000 + and more on the way)
  • Dental appliance and braces for our oldest son $3,500 (plus another $3,000 soon)
  • Bought a house before our first one sold, two house payments for over 1 year. $8,000
  • Sister in Law passed away.  Funeral expenses and ultimately taking on the care of her two young sons. (Unknown total)
  • Mrs. C. Diagonsed with Graves disease $2,000+
  • Furnace broke down in first house, had to replace immediately $2,300
  • Had to replace boiler in second house, $6,700
  • Replace water heater $900
  • Replace washer and dryer $1,400
  • Replace fridge $800
  • Replace dishwasher $350
  • Van died prematurely at only 170,000 miles. (many Honda Odysseys end up well north of 250,000) $4,000
  • Earned $5,000 less than expected when equipment issues caused a job to get cancelled.
  • Partial Roof replacement $2,200
  • Unexpected Obamacare Penalty, despite jumping through all the hoops. $1,000.
  • Alternator on van died while on vacation $300

Up until about 4 years ago I was super frustrated because it seemed like I was constantly taking 1 step forward and 2 steps back.  So what changed?  I spent a lot of time and effort analyzing our spending and income and worked really hard at increasing that gap.  Overall the unexpected expense column totaled roughly $5,000 per year, so once I increased our monthly cash flow rate to double that, we were able to make some real traction and started investing. Once we started making some real traction I started a personal finance blog.

Not only is it that people are MUCH more likely to share their highlight reels than the behind the scenes negativity, people are also much more likely to start a personal finance blog AFTER they have a good handle on their finances.  It isn’t that financial bloggers live these perfect lives, it’s that generally speaking they have already gotten to a higher stage in their financial journey.

I’m not gonna lie, I still have moments where I get super frustrated with these unplanned financial setbacks, and I need to share these moments more, otherwise I take the risk of becoming completely unrelatable to my audience.  I don’t care who you are EVERYONE has unplanned expenses come up that kick them in ass.

So What Can You Do About Unplanned Financial Setbacks?:

Outrun them:  Analyze your normal spending and income and get that gap large enough that unplanned expenses can’t have a major effect on your life.  Take the quarterly savings rate challenge.  Once you are saving 25% of your income, those unexpected expenses will be mosquitoes instead of alligators.

Track your income and spending:  I use Personal Capital to track all of my spending. It’s free and does a great job of integrating all of my bank accounts and credit cards together.  I can compare month to month data and see exactly where my money is going.

Establish an Emergency Fund:  We all talk about emergency funds, but most people don’t do it.  I’d say by far the most important thing I have ever done for my sanity was establishing an emergency fund.  Having an extra couple thousand dollars in the bank gives you a ton of comfort when things go wrong.  Start small and keep adding to it until you hit 6 months of expenses.

Get Your Insurance Right:  For years I carried insurance with really high deductibles in order to get a cheaper monthly rate.  As time has gone on I have found that sometimes this risk is not worth taking.  Use full coverage car insurance as an example.  If my car got totaled, I would be out $1,000.  That’s not worth getting full coverage on, but Mrs. C’s van is worth around $10,000.  That is worth having full coverage on.  When we ran the numbers our premiums barely increased.  Paying in full every 6 months and having a good long driving record were big factors in this being possible.

Renters insurance is also often overlooked.  If you have car insurance renters insurance can be had for around 10 bucks a month.  I think the risk for renters is even greater than for home owners because people who live in apartment buildings are more at risk of damage to their belongings from fire or flood, due to actions of other people who live in the same building.  Having insurance that can cover some of these unplanned expenses takes a lot of risk away from you and puts it on the insurance company.

Once you have increased your delta between income and expenses, established an emergency fund, and got your insurance straightened out,  these financial setbacks will not be able to slow you down and you will be able to start investing for retirement.   I use both Vanguard and Betterment for my retirement accounts.  Betterment is great for lower balance accounts because with as little as $100 you can be invested in over a half dozen mutual funds, whereas with Vanguard you typically need $3,000 to get started in each mutual fund.

What financial setbacks have you had recently and how did you overcome them? 

John C. started Action Economics in 2013 as a way to gain more knowledge on personal financial planning and to share that knowledge with others. Action Economics focuses on paying off the house, reducing taxes, and building wealth. John is the author of the book For My Children's Children: A Practical Guide For Building Generational Wealth.

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