Readying Yourself for Life’s Financial Surprises

Recently, my wife and I took a hard look at our family’s finances. We’ve been happily married for over 14 years, and had never really stuck to a budget. Our intuition and good fortune with health and employment had allowed us to make ends meet with little planning or effort.

But our family is growing and we’ve been talking about a few large purchases we’d like to make, and so we wanted to finally get organized. We printed out all of our transactions for the past several years and totaled up our spending in different categories.

To our pleasant surprise, we discovered that we were consistently saving more than we thought, and had built up a larger than expected cushion in our checking account. This came as a shock because we hadn’t really imagined the extra money was there to spend— we had just felt more comfortable spending when we felt our balance got too low.

Rather than disappointed that our financial habits had been so haphazard, we’ve decided to frame things in a more positive light. Our conservative mindset towards spending has left us with an unexpected margin for some upcoming large expenses, and has inspired us to get better organized for the future. Here are some observations on personal finance that I’m making in light of our experience.

The main thing is to spend less than you earn

No matter who you are, and what your financial goals, there’s one fact about personal finance that you just can’t ignore. Spending less than you earn (and hopefully investing the rest) is the only way to grow your wealth and place yourself on better financial footing. Everything else is secondary.

You don’t necessarily need a budget to be frugal

My wife and I have never tracked our spending beyond the simple act of glancing at our bank account to see how much is left at the end of the month. But we’ve always tried to live frugally and not spend on what we don’t need. Somehow this simple act of not spending (or at least being a little stingy) has been enough to keep us in the green for many years.

Adding margin makes life less stressful

We’ve had times in our married life when we weren’t saving any money, and it was stressful. Money was always on our minds and it was a regular topic of conversation. But with even a small amount of room between what we earn and what we spend, there’s a new sense of freedom. We no longer worry about every little purchase and there’s no fear of running out of money before the end of the month.

Margins allow you to redirect your money towards big goals

Without extra money in your budget, it’s hard to make plans for the future. You get stuck living paycheck to paycheck and everything feels out of control. But when you have extra money each month, or in our case, a cushion that has been built up, you eventually start to think about how you want to spend those resources. My biggest hope is that my wife and I can become as intentional with this larger pool of assets as we were with our day to day expenses— and not just let the money leak into higher spending.

Everyone has their own optimal level of financial organization

While I strongly believe that everyone should spend less than they earn and build up a margin for the unexpected, I don’t think everyone needs to budget exactly the same. Some will track every penny, while others like us, will keep it pretty loose. My intuition tells me that the more disorganized you are, the more conservative with spending you need to be— if you don’t trust yourself. But a very organized system will allow you to press the margin closer and keep your money working for you.

It’s best not to think of margins as extra money

I mentioned that my wife and I learned our finances were in better shape than we had thought, because we inadvertently saved more money than expected. At the time we viewed this savings as a form of margin against future expenses and financial surprises, and so we resisted the urge to spend it. Now that we’re planning to spend it on a few big purchases, we need to top up that margin so we don’t find ourselves with less wiggle room than we’re comfortable with. Not thinking of the margin as spendable money and building it back up when you do spend it, is the best way to avoid lifestyle inflation.

Margins encourage us to live with simplicity and sufficiency

In a world that often pushes us towards excess and extravagance, there is a growing number who find rest in an idea called simple living. This involves choosing to be content with what we have rather than constantly striving for more. Americans especially have a tendency to max out their housing and cars in order to keep up with the Jones, but constantly feel like they need a vacation or a night out for fun.

The idea of living simply and with a sense of sufficiency is powerful in its simplicity. When you don’t spend every dollar, you leave a margin of resources that can be directed toward your highest values.

Conclusion

Personal finance has been a surprisingly enjoyable aspect of our marriage. It’s challenged us to plan together and get on the same page about one of the most important parts of our lives— the way we spend our resources. I’m grateful that even in our disorganized state, we didn’t spend more than we earned or waste our money on things that didn’t matter. By default, we ended up doing the right thing by our own instincts, but I’m glad we’ve decided to add a little more structure to this important part of our lives. A margin of financial resources is one of the best ways to prepare your family for whatever life throws your way.