This Blog Post is Exceptional…Just Like All the Other Ones
“If history repeats itself, and the unexpected always happens, how incapable must Man be of learning from experience.” – George Bernard Shaw, 1903
Earlier this Fall, I was at a party where I overheard a conversation about financial troubles. “You wouldn’t believe it: my car broke down and my A/C unit died in the same month,” complained one woman. “I’ve almost had to drain my whole savings this month to fix everything.” Someone else bemoaned student loan debt and a high electricity bill because his apartment was not well insulated.
The conversation reminded me of my parents trying to fool themselves about their purchasing habits. “Next year our spending will be lower,” they often said. “This year we renovated the master bathroom, so that’s out of the ordinary. ” The next year they would say, “This year we updated the kitchen and took that big vacation, so next year our expenses will be lower.” Whatever it was, every year brought one or more outliers to their expenses.
We all fall victim to this trap. When looking at our expenses, it’s easy to write off some purchases as “one-time expenses.” It’s harder to see the trend over time of these one-time expenses throwing off our savings year after year. If I’ve learned anything from the unpredictability of life, it’s that there is no such thing as an exceptional expense.
Whether it’s furnishing a new home, buying a new car, or paying for an unexpected medical bill, over the long term our one-time expenses tend to add up, consistently sabotaging our perfectly planned budgets.
In fact, one-time expenses are so common that I believe that they’re the core reason for why we earn money. What drives us to wake up in the morning and go to work isn’t so much our daily necessities — housing, food, and utilities. If that was all we desired, then we’d only need a meager income, or retire after just a few years. In 2013, the average American spent less than eight percent of her total expenditures on groceries. We want more than just the necessities out of life, so we earn money to enjoy luxury items and experiences, to create happy memories, and to build legacies that might outlast us.
When we break our routine, we remember it. Whether it’s making a positive change like exercising to lose weight, or experiencing an unexpected tragedy like a house fire, exceptional experiences happen all of the time. And when they don’t, we make them happen.
When we find ourselves with extra cash, we find reasons to spend it. When tragedy strikes, we pay to make things right again. The rhythm of life presents us with a consistent stream of exceptional events — annual vacations, a car battery dying, back to school shopping, tax season. Each event seems new and different, so it’s hard to see the pattern.
It benefits us to recognize this trend because when we throw up our hands and ask, “where has all my money gone?” it’s nice to know where to start looking. Poor planning creates poor budgets that don’t take into account irregular expenses. Budget failure tempts us to make excuses, even though we know that everything is a choice and that there’s no difference between wants and needs. Excuses encourage us to continue making the same mistakes, rather than reevaluating our behavior.
Next time that you find yourself considering a one-time purchase, make a short mental list of the range of choices you have. Let’s take a broken-down car as an example. The immediate response might be “I have to buy a new car,” but what other options do you have?
Is it really a good idea to get the same replacement car that broke down in the first place? Or to get a new, fancier car? Is the problem minor enough that you can identify and fix it yourself? Is this your opportunity to go car-free? Regardless of the correct answer to your individual problem, it should have been decided long before the car broke down. We all know that the car we own today probably won’t be the last car we ever drive. We even have a pretty good idea of how many miles or years a car can last based on the make and model we own. So why is it such a surprise when the inevitable happens?
I hope you see by now that this isn’t just applicable to cars. Many unexpected events have relatively predictable statistical frequencies behind them. There’s an average age at which your fridge will stop running, an average age that people get cancer, an average age that people get married, have kids, or experience all kinds of wonderful or horrible things. Knowing all of these different facts and figures is not your job, but knowing that they exist and have been measured should allow you to move beyond excuses to action, understanding, and a better plan for the future.
We’re not going to predict everything before it happens. Some things will still seem exceptional at the time, and many events really are random. We can, however, prepare ourselves with knowledge about the most likely “exceptions” this month, year, or decade, and use that knowledge to plan accordingly.
Have you ever turned an unfortunate incident into an opportunity to live better? Let us know in the comments.
Nathan is the CEO of Monte Largo Financial Advisors LLC.