This week Lori determined that her mental and emotional health would be at risk if she kept to the end-of-summer move date. Even her original June target looks to be too far out and we are discussing the financial impact of moving April 1. The decision to change her move date is Lori’s and I support it. There are risks involved, however and part of learning how to make smart financial decisions involves identifying risks involved, quantifying them if possible and developing ways to lesson or eliminate them.
The most obvious risk is that Lori’s monthly expenses exceed her income and she begins to rely on her student loan proceeds to meet monthly expenses. The most straightforward way to eliminate this risk was to create a budget and put a cap on the rent she can pay – done – $850/mo with most utilities included is the upper end for Lori currently.
The next risk is spending without a budget – a new place means lots and lots of opportunities for purchases. Lori must create a list of items she needs for her apartment and then stick to the list. I emphasize need, not want. I am particularly concerned because she did buy a few things last week for herself and for the kids. While I understand the satisfaction she feels with –finally- being able to buy a few things, she did so impulsively. Every dollar spent must be budgeted – even if the expense is from a general slush fund category. The fact that there is money in her checking account doesn’t justify the expenditure. I need Lori to think through the impact of every single purchase.
The last risk concerns a lack of longer term goals. Moving out on her own soon makes this an even higher priority and Lori is going to have to squeeze in time to set these goals. Without identifying long term goals – for saving, for paying off student loans, for unplanned expenses – Lori reduces her odds of success. These will be the goals she will need to remind herself of when she is considering impulse purchases. I know she anticipates her salary increasing substantially once she completes her masters and I think that is a reasonable assumption. The timing and amount of that increase, however, are not within her control and expenses somehow always seem to increase both with a child’s age as well as with salary increases.
Lori signed up for the budget boot camp so that she could learn how to make better financial decisions and then teach her children to do the same. Now Lori has some homework to do.