Finance Friday: Recovering from Mistakes

Welcome to Finance Friday 2018! All year long, we’ll talk about personal finances on the first Friday of the month, with the goal to getting us all in better overall financial shape. We know horses are expensive, and we need to be ready as we can for those expenses – both planned and unplanned.

Each month, I’ll cover a topic or invite a guest poster to cover a topic. We’ll do an overview that takes into account varying approaches, offer up some additional reading (both from other horse blogs and from the personal finance world), and pose a question for everyone. We’ll also use these monthly posts as check ins for everyone on how they’re doing with the goals and obstacles that they laid out in January.

Previously, we talked about budgeting, resisting temptation, and emergency funds.

This month, we’re going to talk about some strategies for recovering from a financial misstep.

It happens to everyone, sooner or later. An unexpected vet bill. A raise in board price. The truck breaks down. You get a little too excited during a tack sale. You forget your carefully-packed cooler during a horse show and eat fried dough for two days straight.

(okay, yes, all of those are me. #sorrynotsorry)

What comes next?

First, be clear about the extent of the problem. If you just overindulged at a tack sale, but you’re still within your overall spending limits, then you’re fine. Sure, let yourself feel a bit of a sting from it, but don’t beat yourself up. If it’s an unexpected vet bill but it comes out of your emergency fund, then you’re also still in good shape. Yeah. It sucks, but don’t let yourself mope around about it.

If it’s a bigger problem, then yeah, swear and stomp around a lot. Whatever works for you. Let it all out! But then sit down and be very, very honest with yourself. How much money is gone? Is that all that you’re expecting, or will it come in stages? Get it all laid out and be clear.

Then, can you reverse or fix any of it? If you went on a spending spree at a tack store, can you return any of it? Yeah, it’s embarrassing and frustrating sometimes to do that, but if it will get you out of the hole you just dug for yourself, then it can also be the smart move. If it’s a bill for fixing something, does it have to be fixed right away? Is there any part of it that’s optional?

If you’ve got the limits of it mapped out and you know that some of it just can’t be avoided, then it’s time for damage control. Here are some things to think about as you move forward.

Don’t let it blow up the rest of your budget. It’s an understandable feeling: I had to spend money on X, and now none of it matters, because I’m so far out of shape now that I might as well spend some extra money to make myself feel better, or just, to hell with it. Nothing matters anymore. I’ve been there. I’ve felt those feels. It’s hard to wrestle your self-control back from the brink when you’re also emotional and maybe angry with yourself (or the universe at large). But now is exactly when you need to be clear-headed and make good decisions. If you can intercede with your emotional self in this moment, then you are in great shape.

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Think about sunk costs – but don’t let them run the table. “Sunk costs” are money you’ve already spent on something. It’s money that’s gone – it’s “sunk” into whatever you’ve spent it on. It can be really tempting to say “I’ve spent so much money on this already, I can’t give up now!” This is particularly dangerous fallacy in vehicles and vet bills. More than once I’ve had the vet out and said or thought “hey, while you’re here…” Or, “I just spent a lot of money on this truck, it has to be worth it, so I’ll do this repair.” Resist that urge! The money you’ve already spent is gone. It should not be a factor in your current decision-making. Don’t throw more money at an already expensive problem if you have no reasonable expectation of improvement.

That may mean saying “let’s give it another month before another ultrasound.” Or, “it’s time to move on from this vehicle.” Or it can sometimes mean letting go of something – a saddle that just doesn’t fit, a barn that’s no longer a good home for you. Letting go is really hard, but if the alternative is being sucked into a financial quagmire, then it can be the right call.

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Think about where the mistake came from in the first place. Some financial shocks are truly unexpected. Some are more predictable. Both can be eased with some advance planning. For things that are genuinely unexpected, you need an emergency fund. Don’t be afraid to use it – that’s what it’s there for.

For expenses that are a bit more regular but still sting out of the ordinary budget, you may need to adjust your savings rate, or at least your savings destinations. I fall into this trap from time to time with car repairs – even somewhat routine maintenance can trip me up because my budget is generally so close to the bone.

If it’s a screw-up, like you hit “checkout” on a huge cart of horse stuff that you don’t really need, think about why you did it. Are you frustrated with something else in your life? Will this really make you feel better beyond the unboxing? Are they things right on the line between need/want – and should you give yourself permission to buy them at appropriately spaced out, planned-for times in the future to alleviate that itch? Did you have a little too much to drink? Be honest with yourself and try to spot these moments ahead of time, next time.

Okay, that’s it for this week. Do you have any tips for fixing or recovering from a financial mishap?

How about your goals and challenges? Are you further along on your goals, or have you made progress in your challenges?