It’s important that I start this post off by giving you credit if you have, in fact, made contingency plans. The common denial that things can and will go wrong is often the catalyst of a financial disaster. Shiz happens. And shiz generally costs money. Tires lose their tread, pets get sick, and basements sometimes flood. You need to have a plan in place to deal with these “unexpected expenses” (although they aren’t really that unexpected). Crappy contingency plans plague my generation. If my fellow Gen Yers actually do have an emergency money plan, then it usually is built with what I call Financial Paper Mache’. This means that the backup plan appears to be solid, but it’s actually pretty weak. The most common backup plans for Gen Y (and other generations) are:
1) Parents bailing you out
2) Going into debt on your credit card
I was eating lunch the other day with a good friend, and was lucky enough to be sitting next to a disaster in action. A 30 year old(ish) woman was talking her 60 year old(ish) father into paying off her car and her credit cards. The woman’s financial backup plan, credit, was being bailed out by her other financial backup plan, her father. This story will end terribly. If you are anywhere near 30 years old, and you still consider asking your parents for money, then please allow this post to be your wake-up call. The later in life that you drink from the money teet of your parents, the harder it will be to go without their assistance. Borrowing (which often turns into a gift although people are to wussy to admit it) from your parents is absolute the worst backup plan that you can conceive. You must eliminate the infancy of this thought from your thinking-organ. Selling your foot to raise money would be a better idea (I’m only half-kidding).
How many times have said to yourself, “I have a credit card in case of emergencies?” My guess is that you have said it frequently, and you have even been somewhat self-congratulatory in this proclamation. Besides, being debt free and having a credit card for the sole purpose of handing an emergency seems like a brilliant plan. I used to feel this way. But then I realized that by having my credit card be my backup plan I was actually becoming complacent. If you have $10,000 (credit available on your card) at your immediate disposable, are you likely to push yourself to save $10,000 in cash money? No. This is where I will argue to the death with the industry phrase “responsible use of credit.” A zero balance card, used a major backup plan, will actually hold most people back financially. This is NOT a responsible use of credit. This credit is damaging your financial future. I see it everyday. If you have had trouble accumulating assets, even with a zero balance on your credit card, then this credit card complacency may be to blame.
There is an alternative to these two terrible backup plans. Money. What’s that, you ask? It’s what people used to use to buy things or fund emergency spending. Our government used to use it, our grandparents used to use it, and our employers used to use it. Money trumps credit. My financial backup plan is funded with money, my money (and by my money, I mean our money (Mrs. Planner and I)). Is it hard to accumulate money? Yes. But believe it or not, it’s actually easier to accumulate money when you don’t have another crappy backup plan in your way.
Exam your backup plan. You may be surprised to learn that this previously considered prudent plan, actually is what holds you back financially.
One more thing. Please please please eliminate the “possibility” of borrowing money from your parents. No matter what your financial situation is right now, it will be worsened in the long term if you borrow money from your parents. And yes, borrowing is the same damn thing as accepting a gift.
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.