Take this pair of work shoes I bought recently. I purchased them eight months ago because they were on sale (at $43.90, who could resist?). Guess where I bought them from? That’s right: Bata. Which, in common Singaporean slang, stands for “Buy And Throw Away”.
I should’ve known better.
I was walking to my usual coffee stall yesterday morning when my Looks-Expensive-But-Are-Actually-Really-Cheap shoes decided to give way. With my shoe sole flapping like a dying trout, there was absolutely no way that I could walk like a normal human being. So while I was limping to the office, my boss asked me if I was injured and needed to take MC.
I urgently need a new pair of shoes. Maybe something a little more expensive this time.
We all make dumb mistakes (Like buying a cheap pair of shoes that give way after 8 months).
Or if we punch in a slightly later time in a parking coupon so that we can steal an extra 10 minutes from the government (hah! Stick it to the man!), and then the saman auntie comes 5 minutes later and foils our mini-rebellion with a huge fine.
Other times, dumb mistakes happen to us. Yesterday, I was waiting for the MRT at Tanah Merah station during rush hour (Yes, still wearing my flappy sole shoes). This crazy aggressive lady was trying to shove her way into the train, when the doors clamped shut on her bag, and tore it away from her helpless hands. It was like watching Jaws, only more brutal.
Stupid mistakes like these are gonna happen – We might as well accept it. The key is not to prevent them from happening, but to prevent them from screwing with our money when they happen.
How Mistakes Screw With Your Budget
Take Jonathan Kwok’s article in the Invest section of the Sunday Times a couple of weeks ago.
Background: Jonathan Kwok made some buzz in the Singapore personal finance community when he wrote about his goal of hitting $100K by 30. (You can also read my response to it here – which was one of my most popular posts ever) He worked backwards and figured that he had to set a budget of $35 a day. But he quickly ran into some budgeting trouble:
“It all started last month when I bought a new laptop for around $1,900. It was something that I had to shell out money for – my old one decided one day to throw a fit and stop working, so I had little option but to dip into my savings.
…With my heart aching and mind buzzing from the setback to my savings plan, I lost control of my financial discipline and unwittingly spent even more.
…Generally, thee just seemed to be more stuff to by, from the $5 bag of imported potato chips to the $4 chicken pie from an upscale shop that would have cost much less elsewhere.
I still recorded all these purchases with the expense tracking app on my phone… I had faithfully put in the $1,900 laptop cost and looking at the huge sum at the top was totally demoralizing.
‘What’s the point?’ I thought. “There’s no way to average down and fit under the $35 daily budget anyway.’ The records showed me busting my budget by about $250 for the next two weeks.”
It’s Got Nothing To Do With Discipline
It’s easy to sit on a high horse and brush this aside as a case of “not having enough discipline”.
But if you look a little deeper, it’s actually more to do with how we plan our spending.
Mistakes – like your shoes giving way or a parking fine or your laptop breaking down – WILL happen. Setting a strict budget limit like $35 a day leaves no room for these mistakes.
As Ryan from MoneySmart writes: (and I love this quote):
“The human brain respects budgets like our MPs respect public opinion.”
“If you’re planning a wide scale budget, plan for emergencies. You can’t plan exact expenditures for flu medication or car trouble; but you can have contingencies.”
The Just In Case Account
So how do you create a budgeting system that works? The trick lies in the planning. For example, I previously wrote about how you can plan to reward yourself by keeping a Big Play account for vacations and self-indulgences.
But you can use another account to plan for contingencies as well: I call this my Just In Case Account.
Every month, I automatically transfer 15% of my spending into a separate sub-savings account. This gets accumulated every month until I actually make a dumb mistake (or one happens to me). Then I simply dip into my Just In Case Account and buy new shoes or pay the parking fine. My “regular” spending stash is never touched, which helps me to stick to my regular spending budget. Easy-peasy.
Think of it as your own little personal insurance scheme. You can easily create this in 5 minutes by setting up a Standing Instruction with your bank.
Here’s the fun part: Sometimes, I get a good year when I hardly touch my Just In Case Account. Then I’ll take the whole year’s worth of Just In Case savings, and spend half of it on stuff that I don’t need like a new Kindle Paperwhite (ooh ooh!), or a remote controlled flying shark.
It’s like a reward for not being stupid the whole year.
Dumb mistakes will happen. Don’t beat yourself up over them. Instead, anticipate, plan for them, and keep your budget intact.