Why money trouble comes in threes

You need to budget for quarterly, yearly and even random expenses so that if it starts to rain, you know it won't begin to pour. These include:

• Unpredictable events that you can more or less predict and budget for. You know you will have to replace your roof, rotate your tires and upgrade your laptop, even if you don't know precisely when.

• Events or bills that happen about once a year (and tend to increase annually) and that can be hard to budget exactly for -- holiday gifts, insurance costs, a vacation, etc.

• Totally unpredictable events that add to the cost of living, such as a job loss, medical emergency, sudden move or home repair.

By ignoring the fact that these events, or variations of them, are likely to hit your bottom line on a regular basis, you'll set the stage for a series of money problems.

A few ways to cope

You may have limited control over how and when money troubles strike, but there are ways to minimize the damage to your wallet:

• Save a little, save a lot. Pond says businesses cover their bases by setting aside troubleshooting money in what's known as a sinking fund. Whatever you call your cushion, and no matter how broke you think you are, give up a cup of coffee, a sandwich, a martini once a week and put the cash in an account, where it will prevent money trouble from building up.

• Do a realistic cost-of-living assessment. If you add up the likely cost of life's nonrecurring or unpredictable expenses for the next, say, five years, then divide that total by five to reach the yearly amount you potentially should set aside to pay for them, "it's going to be a big, big number," says Pond.

Still, it's a number worth calculating. Looking ahead for the next three years or so, these are the costs that I can see lying in wait:

• Replacing husband's feeble laptop: $1,300.

• New roof for garage: $2,500.

• Replacing some windows: $4,500.

• Replacing the water heater: $250.

• Car repairs: $3,000.

• Total: $11,550.

That means we should try to save an extra $320 per month starting now to meet these costs.

And this list doesn't include the price of things I can't foresee, such as trips to an emergency room, medical care for myself or my husband, or even decisions we haven't made yet. If we replace our 9-year-old car with another used one within three years, that's an additional $7,500, at least.

Then there are the unpredictable amounts by which our monthly expenses might rise. Our son is likely to start preschool, to the tune of $500 or more per month, for example. Our health-care premiums are likely to rise as well.

The point is, if we save for the trouble we can see from here, at least, we will stave off the flock of financial problems that would follow if we were less prepared.

And in case you think this is theoretical, let me remind you that the Women in Red method is all about real people dealing with real money in real time. I spoke to my husband last weekend about what it would take to save that extra money, starting now:

• Driving less, car-pooling more. Including, as this column was being readied, agreeing with a neighbor to car-pool for grocery trips.

• Preparing cheaper meals and a leaner grocery budget, and eating less meat.

• Drinking jug wine or none at all.

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• Lowering the thermostat and wearing sweaters.

• Winterizing the house even more (we just put plastic on two skylights and got weatherstripping for doors).

• Giving up one cell phone (we can probably get by with one instead of two).

What are you doing to stop your money troubles from building up? Tell us, at the Women in Red message board.

Published March 5, 2008

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