Several months ago, I volunteered to be the publicist for a folk dance camp. I didn’t realize at the time that this meant I’d have to pay up front for running the copies of the registration brochure, a $180 expense; I’d get reimbursed for it, but not until some weeks afterwards. I grumbled a little when I figured this out, as I’d just paid my annual auto insurance fee and my budget was a little tight, but I was able to pay for the copies and to do without the money until the reimbursement check arrived, no other expense other than what interest the $180 might have earned if it’d stayed in the bank for a month.
One of my acquaintances had a phone bill that was $25 more than usual. This threw them into complete financial crisis, scrounging and scraping and having to charge other basic needs on an already-laden credit card; in the end, that unexpected $25 bill probably cost them at least $50 in credit card interest, late payments, etc.
The more I observe myself and my friends, the more I think the real guideline for assessing someone’s financial shape is how big an unexpected expense they could pay for if given, say, three business days to come up with the money.
Needing $X right now — that’s it right there. Most Americans, if told that they would have to spend $100 on something a year from now, could save the money by then; a lot fewer could write you a check for it this afternoon. If I have until 2010 to come up with several thousand dollars to replace my roof, I could do it barring other financial or medical disasters; if I had to come up with that money by the end of the month, I’d probably have to take a loan, which would cost me more in the long run. If you have a medical emergency and need major surgery, you don’t just have to come up with $50,000; you have to come up with $50,000 now. (This is why I’m highly skeptical of medical savings accounts as a solution to the U.S. healthcare crisis; there’s no guarantee that you’ll have saved up the money to cover the expense when it happens, especially if you’re young or poor.)
What’s helped me to develop savings, besides having the good fortune to earn more than I need for immediate survival, is the attitude that money in savings doesn’t exist. It’s leftover from childhood training; as a kid, I got it in my head that money in savings accounts was Never To Be Touched Because It’s For College. Now I have it in my head that money in savings accounts or CDs is Never To Be Touched Because It’s For Major Necessary Home Repairs (like that roof replacement that I really need to do in the next couple years) Or Disaster Survival. When I’m thinking “can I afford X?”, where X is a book or a new laptop or a loom, the savings doesn’t even enter the calculation. (And even if X is a home improvement or a major car repair, I still tend not to remember my savings. My idea of being rich is to have so much saved up that I can pay cash to replace the roof and still have enough to cover basic expenses for a year.)
