Why it's hard to plan for a rainy day

This is a personal anecdote about why money catches us out. Even people, like me, who should be aware.

In the last year, I’ve been hit with two large expenses that came out of the blue:

• a few months ago Augusta’s car needed $3,000 of work, out of nowhere. It’s a pretty old car, so maybe we should have been expecting something like this. But we weren’t. And we didn’t have the money just sitting there.
• and a while before that, a crack opened up in a brick wall of our house. It (like the car) is old, but really solid. We’ve lived in it for ten years and never seen anything like this. Totally unexpected. Another $6,000. I had to put that on the credit card.

Now, I am not totally hapless with budgeting. I do plan for the predictable stuff: rego, electricity, insurance, those sorts of things. They come at the same time every year and I know they’re coming. So that isn’t the problem.

The problem is everything else.

When we surveyed young Australians before starting to build Lucie Money, we asked what made staying on track hardest. Getting hit with unplanned expenses was the thing they named most often: 45%, as compared to 36% for not earning enough (which was a surprise).

And it isn’t only the one-off bills, because for many people, income doesn’t arrive evenly either. Researchers who tracked low- and moderate-income households for a full year found them averaging five or six months a year in which income ran at least a quarter above or below its normal level.¹

So you can be doing your best to do everything right and still get knocked around. The costs that hurt the most are often the ones that come out of the blue.

Except of course, they don’t just come out of the blue. Everybody knows that there will always be unplanned things that hit us when we least expect it and which we should prepare for.

How? Well, the obvious thing is setting up a rainy-day fund for exactly this sort of thing. But that requires money which is left over and can be put aside - and who has that? Rent, groceries, tolls, petrol, insurance, mortgage repayments, credit card bills… Everything is demanding, and everything is going up. A lot of people don’t have room to set aside a rainy-day fund for the things that might hit them out of the blue. And for some it’s harder than that: according to the ABS, more than a quarter of Australian households contain at least one person who can’t raise $4,000 in an emergency.²

So what most people do, which is what I’ve always done, is just hope for the best and try to make do when the emergency hits.