How to manage money when life happens

By MP Dunleavey

Editor's note: Join columnist MP Dunleavey and a group of women as they seek to strip away the myths around money, liberate themselves from debt and find financial sanity. Follow the ongoing quest of the Women in Red every other Wednesday in Dunleavey's column on MSN Money.

Even though she just joined the Women in Red this fall, Heather has been doing a great job of mending some of her bad money habits.

She has been eating out twice a week instead of four times, saving an additional $50 a month, sticking to her debt-payback strategy -- and even moving toward greater financial harmony with her spouse.

Naturally, I was suspicious. Who has the gumption to dive right in and start making financial progress? Where was the resistance, backsliding and deep personal struggle that the Women in Red are famed for?

So I was relieved when Heather, a 24-year-old law student living outside Albuquerque, N.M., broke down and told me the other side of the story.

Meet our secret member

You may think you know the Women in Red, but there is another volatile presence in the group -- let's call her LEA.

LEA is a powerful influence on member's finances, yet she is maddeningly unpredictable. No one ever knows when or why she will come skipping through the door, throwing the best-laid financial plans off-kilter.

LEA is the moniker I created to capture what happens to your money when Life Events Arrive.

In theory, if you are well-prepared, and, particularly if you've been sticking to your 60% Solution budget, your finances should remain rock-steady when you get hit with unplanned expenses.

Ideally, we all should have an emergency fund to cover a true crisis and a savings account set aside for all the strange and random curveballs that life sends us (the cell phone falls in the sink, three friends get married the same summer, an old medical bill mysteriously resurfaces, etc.).

But for people like the Women in Red, who are just getting the hang of this money-management thing and who may not have much in savings or even a working budget, the hurdle is learning how to withstand LEA's capricious whims without giving up any financial ground.

A sudden change of plans

Here's what happened to Heather.

She and her husband had been waiting for an $8,000 windfall (scholarship money owed to him) to pay off their $3,200 in credit card debt and buy a new car.

Then, the $300 a month that had been going to their card now could be channeled into the couple's first-ever retirement accounts and into health insurance for Heather.

Of course, whenever something smells too delicious to be true, that's usually because LEA is whistling around the corner. Because:

• Suddenly Heather was selected for a demanding new project at law school.

• She and her husband now need to move much closer to her school, doubling their rent from $350 to $700 or more.

• Although they can still pay off their credit card, they have ditched the car idea, the retirement accounts and the health insurance to channel that $300 a month toward rent.

• And they need to cut back still further -- give up their land line? use less heat? -- because Heather won't have time for her part-time research job.

They went from a surplus to a deficit in about two weeks. Isn't that always the way?

5 ways to survive a financial storm

Although personal-finance gurus warn you to prepare for life's turnabouts by living well below your means and building a big, fat savings cushion, what they forget to emphasize is that life is nothing but a series of setbacks.

Most of the Women in Red got to where they are because they once handled all such crises with a plastic cushion instead of cash.

How do you stop that debt reflex, field those financial curveballs -- and prevent them when possible -- and still maintain your fiscal equilibrium?

Continued: Ways to deal with LEAs

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