TODAY, LET US AGREE to include a line in our personal budget for stupid money – money which we expend that, with a little more discipline, planning and thought, we could avoid spending. It is important that this line item be included in our budget.
Furthermore, we can agree to budget for no money being spent on this line item because we are not stupid. So let us monitor our spending. Here are items that can be added in the “actual spending” column of that budget compared to the fat zero which is in the “budget” column: late fees, over-the-limit and similar fines and penalties. Are there any of these for, say, even overdue library books or payments on our credit cards? Did you miss your flight or similar travel arrangement and had to pay extra or forfeit the service itself? Place those costs in the “actual” stupid money column.
Are you keeping up with the Joneses? For example, are you buying another house, car or taking a vacation trip that you need or can afford? If so, assess the savings in costs if you had lived within your means rather than follow the neighbours’ lead and, yes, add it to the “actual” column.
Did you underinsure your house or vehicle? You can also have underinsured yourself. However, the ultimate outcome is that you die and your dependents do not have enough funds to meet current and future costs and expenses. Yet, you would be around for that, so let us set that very important financial gap aside for the time being; after all, you will be dead and buried. Yet, would you wish to have that situation?
Similarly, when you underinsure your assets and there is a partial or total loss, you will be proportionately refunded for your loss according to the percentage of underfunding. For example, if you insure only 60 per cent the valuation of the asset, you will receive a 60 per cent payment on processing a valid claim. That additional 40 per cent, or whatever is the level of underinsurance that you have incurred, should also be placed in the “actual column”. It is agreed that you can subtract the cost of what would have been the additional premium for full insurance coverage.
Tradesmen shortcuts: Have you ever taken your vehicle to be repaired by the village mechanic and ended up with more cost and trouble than if you had taken it to the dealer? When it comes to a new vehicle, computer, new house facilities and so on, you may make this stupid money mistake and end up with a problem. However, if you manage to wrangle yourself out of such a problem, just remember to make a suitable addition to that “actual” stupid money column.
Leasing a vehicle: In our country, leasing a vehicle for personal use does not make financial sense in the long term. After leasing the vehicle for four or five years, there is still a significant cost for acquiring the vehicle. Leasing may seem like an attractive option where the monthly amount payable is affordable as compared to the down payment requirement and monthly instalment to purchase. The extra cost of leasing as against a reasonable purchase plan therefore qualifies as stupid money. Assess the difference in cost and add it to that “actual” line.
Having this line item in your budget and monitoring it from time to time will strengthen your motivation to eliminate the actual occurrence of spending stupid money over time. Furthermore, with the saving of stupid money now so specifically identified for reduction/elimination, there is more money now available to spend, save or invest wisely.
• Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances. This column is sponsored by the Barbados Workers’ Union Co-op Credit Union Ltd.