This post is part of a series called “The margin”. If you missed the introduction, you can go back and read it here. In this part of the series, I’m talking about building in a financial margin when you consider your budget for expenses. This is the fifth installment on the financial margin. If you missed the first four you can read them here, here, here, and here.
Part V: Childcare, pets & living it up
If you get sick, have to work late or travel for your job, you may need to increase the amount of help you get with childcare. If that help is paid, it’s going to cost extra. Add a margin for childcare on top of what you budget for your regular coverage needs to prepare for overages like these. (If only we could expense them!)
As I said in the intro post, unless your pet dies young, it’s probably going to cost more than you anticipate. Consider the cost of occasional pet sitters for when you’re away, vet bills when Sparky’s ill, and special care and food when he’s old (or ill). Then build a margin on top of your regular budget for food, annual vet visits, toys, treats, pedicures, and outfits (if you’re one of those people).
Living it up
In the midst of all this talk of doom and gloom, it may seem odd to suggest building in a margin for living it up. However, during a week when your dishwasher breaks and your car gets dinged in the parking lot, you’re really gonna want to be able to say yes when a friend invites you for a spontaneous night out. Things come up. Even good things. Friends come for a visit, you get invited to a baby shower or birthday party, hear of a special event, or just need a cheer-up pedicure. It helps to build in a margin to each line item (e.g., gifts, entertainment, mental health) so don’t have to say no when life offers lemonade instead of lemons.
So what’s your margin?
Consider your situation. Do you own a home or rent in a hot market? Have children? Own a repair-prone car? Have a job, family or health situation that makes expenses somewhat unpredictable? Think about building in a 10 or 15% margin (or whatever you can afford) on top of what you estimate your regular expense will be.
If your rent is stable, you’re kid-free and have noticed that few things “come up” throughout the year, then you’re probably safe with just 5%. That was the case for me in my early 20s, but boy how things change.
If you don’t tend to pay a lot of attention to how much things cost or where your money goes each year, you might want to round these guidelines up. Way up. These percentages assume you already have a pretty good idea of how much all of your expenses will cost, even the ones that fluctuate.
[OMG, this is depressing. My best advice: go ask your boss for a raise right now. You’re gonna need it. Don’t have a boss or other way to increase your income? Plan to cut your cable, fire any household help you may have, darn your socks and eat nothing but beans and rice next year. Kidding. But only sort of.]
We can’t control whether we are subject to some of the overages discussed in this series. All we can do is mitigate them as best we can, live within our means, and develop our skills and strategies to cope when the inevitable would-be budget-buster comes up. Socking away an extra 5, 10 or 15 percent each month – building your financial margin – can help.
If by some miracle you don’t end up needing the margin one year, celebrate your underage! Save the excess for the next year or spend it on something that adds value to your life. Either way, you will have created a positive overage – and knocked the oxymoron right out of that term!
Disclaimer: I’m no financial pro, nor professional. I do have common sense, some life experience, and smart friends who know about these things. However…
The information provided in this post is my personal opinion and does not constitute professional financial advice. The information is of a general nature only and does not take into account your individual financial situation or needs. If you need financial advice, Economist at Home recommends that you contact an appropriate professional. Furthermore, while this post may contain links to third party websites, these have been provided solely for further information. Economist at Home is not responsible for their content. The inclusion of links to a third party website is not an endorsement of the content provided or the third party itself.