I have a relative who lives his entire life in “day to day” mode. Everything seems to happen to him by accident. His kids were unplanned (big oops since he can’t really afford them) and he has no career path but instead takes jobs randomly. He has no long term financial plan (or savings) so when something goes wrong, it’s a total crisis. Everything from vacations to simple errands are done on whims. While there’s nothing wrong with having a little spontaneity in your life, going through life without a plan is not going to help you achieve financial success. While there are rare stories of people inheriting or winning millions of dollars, most people don’t get rich that way (and those that do will eventually lose it all without a plan). Most people get rich by thinking and planning ahead.
The biggest problem with not planning ahead financially is that your entire life becomes a crisis. Everything from a dead car battery to a broken refrigerator becomes a huge deal. If you don’t know where the money for repairs or unexpected expenses is going to come from, you run around in a panic trying scrape money together. It gets worse when something really big happens like a death or illness in the family. If you don’t have a plan for dealing with the expenses, the estate, or the lost income, you can quickly find yourself hundreds of thousands of dollars in debt with no way to dig out. Talk about living life in a panic. Dodging bill collectors, always looking for spare change under the couch cushions, and living in fear of what will go wrong next is no way to live. It’s too stressful.
You’ll never get ahead this way. Running from one crisis to the next uses up all of your energy. Your money flies through your fingers too fast for you to figure out what to do with it. If you have a plan, on the other hand, you always know where the money for things is going to come from. When you wake up in the morning to find the fridge has died, you’re still inconvenienced because you have to go choose a new one and wait for delivery, but you don’t compound that by wondering where the money is going to come from. When someone gets sick or dies, you’re able to deal with the emotions involved instead of freaking out about the money. Having a plan frees you from the crisis mentality and gives you room to breathe. Things are still stressful, but they will get back to normal more quickly.
Beyond the crises of everyday life, a long term plan is the only way to prepare yourself for retirement, paying for education, or your own medical care. You can’t just wake up when you’re sixty and say, “I think I’ll retire today” or “It’s time to pay for junior’s college, I’ll just write a check.” To do that successfully requires thinking about it and planning for it for decades. You can’t just wing it. You have to know how much money you’ll need, how to save wisely, and where in your budget that money will come from. If you’re seeking to protect your assets from disability or disease, you need to have planned for it by purchasing insurance and saving. Financial success is all the result of a long-term plan.
Sometimes even the best laid plans fall through, unfortunately. You can make a lot of plans and still end up in trouble if the expenses exceed your plan or something really terrible happens. But the fact that a plan may not work out isn’t a reason not to plan. Let’s say you have a plan to save a million dollars saved for retirement and, for whatever reason, you don’t make it. You only get to $800,000. You still have $800,000. That’s far better than the $0 you would have had with no plan. Planning will save you more often than it will leave you stranded. So make a plan, stick to it, and tweak it as you go along and you needs change. You’ll be far better off than people like my relative who just wing it.
(Photo courtesy of Robert S. Donovan)
Yes, totally agree with your article. We do need to plan or start something. Even if we do not achieve our goals, we will end up somewhere in between. Like you say, it is better to have something than nothing.
I’ve lived 1 year when I was barely earning enough to live by. While overall it was quite alright, but it is stressful to have to freak out when unexpected expenses crop up.
Excellent article, Jennifer. Most people learn this eventually – but the difference between learning early vs. late can be enormous.
Well said. I think sometimes people actually believe you can live like the people you see on television shows — totally random and unplanned. The problem isn’t spontaneity; it’s lack of realistic thinking Even the animals in nature know to prepare for what’s coming.
I know a woman whose whole life was full of unexpected ’emergencies’ which really weren’t but a total lack of planning and something else. I think no matter what she may have said about it, I think she revelled in the attention it got her and all the ‘poor you’s’ that she heard. She had a desperate need for attention. When I finally realized that, it was at a point I wouldn’t be seeing much of her any more due to a move, but I would suggest to those close to you with this problem, to not feed the beast. Give them attention yes, but for the things that they do manage to pull off well, or that their kid made Honor Roll or whatever. Anything but that lack of preparation and craziness. And no I’m not trying to be judgemental, but at this point I have lived a fairly long life and have had my own amount of calamities in my life and yet somehow I can’t make them sounds so delightful or enthralling, or quite as bad as some of these people do. Maybe it is because I know emergencies will happen which is why there are certain things I stock up for in the winter. Or other things that you know will come, like Christmas and birthdays–I can never understand the news interviews at Christmas and how so and so has no money for Christmas. No one ever said you had to spend oodles of money for this holiday, but you can plan for it, even with minimal amounts of cash. For my son’s birthday last week one of the gifts I gave him was a $10 gas card I got through what I bought at CVS a month prior and his other gift was a DVD bought with reward points. Simple presents but he just raved about the gas card as money was tight that week for him and he needed gas to finish off the week so he was especially grateful.
I totally agree with you.
Even when there’s no logical reason to believe your life will improve, you must plan, otherwise you’re stuck.
Also, living alone on a small disability check requires making plans or you’ll go crazy. Even if you just plan what you’re going to do tomorrow or next week, you give yourself a goal to work toward. And, planning has other benefits, such as keeping depression at bay and the knowlege that you won’t leave your loved ones with a mess to clean up.
You can be independent longer if you plan.
You’ll feel better if you plan.
You’re life will just be better if you plan.
Preparation and organization are two of the biggest keys to getting your personal finances in order. It’s easy to train wing it, but it’ll come back to bite you in the ass more often than not.
Unexpected emergencies are only unexpected if you haven’t prepared for them. If you have a budget in place and nowhere all your money should be going, you should be well prepared for most emergencies that come your way. It simply the people don’t take the time to prepare that causes the problems.
This is so true. I’ve been a financial analyst for almost 6 years now and when it came to my personal finances I was totally winging it. Recently I decided to take my financial life seriously and create an actionable plan to save $100,000.
Fortunately, I don’t have any debt and I already know more about finance than most people. The only problem was that I didn’t have a plan. Now that I have one, there is nothing to stop me from reach my goal buy myself.