External Forces can bring you unstuck… Unless!

Hi everyone, here is my next Big-‘E’ and today it is External Forces

I’m sure you can tell me what the acronym ‘GFC’ stands for. There are lots of things in your life that you have control over and then there are things that just happen that are outside your control. The ‘Global Financial Crisis’ was (or still is) an external force like that.

You have absolutely no control over these events. They’re not your fault, but you have to deal with whatever effect they have on you and you just have to make the best of them when they come your way.

Control What is Controllable

My motto is to control what is controllable so the uncontrollable things in life have less ability to bring you unstuck. Identifying things you can not control is important because it allows you to be aware of what could happen so you have a better chance of being prepared for when or if it occurs. It also makes you more conscious when you are considering taking on new commitments of what could possibly cause you grief. If you are aware of it you can monitor it!

I would say that good advice, savings and insurance are essential for managing things beyond your control!

If your finances are in a shambles and then something bad hits you from left field you may find it almost impossible to recover. On the other hand, if you have your finances in order and your money is organised so when the bills arrive the money is there waiting to pay them and something hits you from outside your control you will find it much easier to manage.

A Personal Example

Just over 10 years ago our then 18 yo daughter e-mailed us from Canada and invited us to her wedding. Maybe I should have seen that coming but I didn’t. It cost $10,000 that we did not have at the time to get the rest of the family to the wedding and back. However, we had our finances in order so this ‘surprise’ from beyond our control was not a knock-out blow. We were able to deal with it relatively painlessly by borrowing the money and putting the repayments into our budget.

(The week after we returned I sold the very first copy of Simply Budgets and within 6 months left my school teaching job for a much more exciting career.)

Crossing the Line

So, for thousands of people it is the inability to deal with these External Forces that bring them unstuck. Basically this is because they fail to have a ‘bottom line’ plan for those things that are within their control and as a result there is no boundary that says “If you cross this line you are in trouble”. If you don’t know where the line is it is way too easy to be on the wrong side of it!

(I remember my first date. I had very clear boundaries and knew exactly where the line was! That made it really easy for me to say NO when the pressure was on to start all that mushy stuff!)

Sorry, I digressed a little but you know what I mean!

‘Knowing’ makes all the difference

When external financial pressure comes your way you really have no protection against it if you do not know if you have surplus money or not. E.g if friends drop around and suggest you go out to dinner your financial success or failure for the day is about to be determined by External Forces.

If you knew you had surplus money, you could go out to dinner with no feelings of stress or guilt and have a good time. If you knew you had no spare money it would be just as easy to say “Yeah sure, let’s go but it’s your shout ‘cause I’m broke until next payday; or would you rather we knock something up here at home together this time and we’ll plan it better for next time”.

There is no embarrassment in that situation, you just made it clear that you know your position and what is possible right now. You also did not say NO, you just said we’ll plan it better for next time, which says you would love to go but it will be much better for you if it is planned right.

Of course if you don’t know you are already behind your safe bottom line target and you just agree to go because it was suggested, you might still have a good time, but soon enough you are going to feel ongoing stress over bills you can’t seem to pay on time, and they will just keep coming!

A ‘Bottom Line’ Plan

I mentioned having a ‘bottom line’ plan. The way I like to prepare a budget plan is to include only the expenses I absolutely must pay for. This is my ‘bottom line’ plan.

A bottom line plan is what you would fall back on if everything went to pieces because of some External Force. Your ‘bottom line’ plan requires as little income as possible and only includes absolute ‘must pay’ expenses. A plan like this will show your target bank balances for each day for the next year based on paying only your bottom line expenses and depositing JUST enough each pay to cover them.

On payday the amount that is deposited into your account is more than the plan is based on and so it is really easy to get ahead of target. You check your account balance on a weekly basis and compare it with your target account balance to see how much spare money you have. It is literally a 2 minute exercise to take control using this method where hours and hours of record keeping would not give the same peace of mind.

Defining ‘External Force’ Expense.

Many people will quote ‘the car blowing up’ as an external force type expense as if they have no control over that. Just this week I cooked the engine in one of my cars. I could fix it myself but have other things I need to do with my time so I had it towed to the mechanic.

The car is 19 years old and has done 200,000 km so my question is, was this an unexpected event or something I could have seen coming? There is an obvious answer to that question.

If your car is one week out of warranty and it blows up, you can say that was an unexpected out of your control, external force acting on your finances. My experience was NOT an ‘External Force’ event. It was predictable and fortunately I have money put away for External Force events like this just in case. (It was still annoying because a tiny hose no more than 12mm in diameter will gobble up a chunk of my ‘rainy day’ money and I should have been checking more diligently more often).

A child needing an operation on a broken bone or a tooth that was knocked out in a footy game are also valid External Force events and you need as much as possible to try to include money for these kind of events in your budget plan. If you do your best to keep the controllable things under control then, as I said earlier, the External Forces can not muck up your finances anywhere near as much as they otherwise might.

Hopefully you are enjoying and learning from my Big-‘E’s and you are gaining a better understanding of how to manage money. If you have any topics you want me to write about in the future please let me know via reply e-mail.

That’s all for now.

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David Wright