Saving for anticipated expenses is important

In my presentations in the schools and in this column I talk a lot about anticipated expenses and the need to save for them.

It is something too many Americans are not very good at, so they end up going into debt for them when they incur one of those expenses. The problem is they too often consider it to be an emergency, so they don’t feel guilty about it when they go into debt. “What was I supposed to do, it was an emergency!”

It is the same phenomenon as false needs. That is why I say, save more so that you won’t have false needs and emergencies that you have to go into debt for and pay all that interest and maybe fees.

Look into the future

Hhen it comes to anticipated expenses, always look into your financial future and provide and save for the things that you can easily anticipate. New appliances and a new roof, as those age, car repairs, for that older vehicle, new tires, and greater health care costs, as you get older, are just a few examples.

Then there are other things like that wedding coming up next summer, the Christmas holidays, and that annual vacation.

Plan ahead for pet care

That said, there is one expense that I am hearing more about lately that you really can’t necessarily anticipate, and that is the thousands of dollars that some people spend on their sick pets. It seems that you can anticipate that you are an owner that would spend that kind of money, but you have no way to know if your pet will ever need that. That is why I say that you need to have generous general savings for those expenses that you just can’t necessarily anticipate, so you won’t have to go into debt for them if they arise.

By the way, pets in general can be expensive these days, so if you are going to have one, make sure that you budget properly for those expenses, like food, medicine, veterinary care and adequate care when you travel, and know that those expenses are likely to increase over time.

That failure may, in some cases, be why we have such an increase in pets ending up in shelters today.

Save those tax returns

On another subject, tax refunds, which I don’t get into as much, because, as I have said, there is so much out there in the media at this time of year.

I was, nevertheless, encouraged by this Bankrate survey report indicating that a good percentage of Americans will use their refunds to boost their savings. “Two-thirds of U.S. adults (67%) expect a tax refund this year, with more than a quarter (28%) of those expecting refunds planning to use most or all of the money to boost their savings.”

As you know, I think you should adjust your withholding to get no or a small refund, so that you can use that money during the year in order to meet your financial goals, like saving more, including for retirement, and paying down debt, so that you get a bigger bang for those bucks. I also think that you should do those same things every time you get a financial windfall such as a raise or bonus at work, or an inheritance.

Here are some tips from Erika Kullberg, founder of Erika.com, on smart financial moves for tax refunds this season. You might want to keep them and review them next New Year’s, the other time when we tend to look at our finances.

“Boost your emergency savings: I recommend saving three to six months of living expenses in an emergency fund to cover unexpected expenses or financial setbacks. If you don’t already have an emergency fund or if your fund needs a boost, consider allocating a portion of your tax refund toward building or padding your emergency savings. Preparing for the unexpected will alleviate stress and provide peace of mind.

“Contribute to your retirement savings: If you do not have any debt and feel comfortable about your emergency fund, you can use your tax refund to contribute to retirement accounts such as a Traditional or Roth IRA. Investing in retirement accounts can help you build long-term wealth and secure your financial future. You should maximize your contributions to tax-advantaged retirement accounts to maximize potential tax benefits and compound growth over time.

“Review your financial priorities: Tax refunds can provide a significant financial boost, and making smart decisions with that money can help improve your financial situation and set you up for long-term success. You may be tempted to spend it on a nice vacation, designer clothing or to spoil your kids, but it’s essential to take a step back and evaluate your financial situation to see where it could help.

“Eliminate your debt: Use a portion of your tax refund wisely by paying off your debts to expedite your financial journey. Behind boosting savings, other common plans are to use the money to pay down debt (19%) or to pay for dayto-day expenses (11%). When managing multiple debts, prioritize repayment based on interest rates. Start tackling high-interest debts like credit card balances before addressing lower-interest obligations like student loans or mortgages. By focusing on high-interest debt first, individuals can reduce the interest paid over time, resulting in substantial long-term savings. This approach accelerates debt repayment, allocating more resources toward savings and investments.”

More reader input

Finally, here are some additional and “right on” reader comments, including from a business teacher and a spouse in the financial industry as well as another reader.

“Use cash whenever you can — too many people resort to debit cards or credit cards and can’t actually feel that hard-earned money leaving their hands/wallet. Every one of your weekly articles just makes sense so they are worth the read! There is nothing wrong with old school thinking and habits.”

“I really enjoy reading your advice column on personal finance in the Sunday D&C.! Bravo to you for promoting household solvency!”

John Ninfo is a retired bankruptcy judge and the founder of the National CARE Financial Literacy Program.