Tuesday, July 27, 2010
Have A Plan B
Tip #267 - Have A Plan B. There are so many factors that come into play when trying to save money - where to live, where to work, where to invest, whether to take a vacation, where to shop, etc. And in each of these categories we have choices we need to make that affect our bottom line. We often plan our financial lives around the choices we make - the job we have, the house we live in, the places we spend our money. But sometimes the choices we make do not last. Then the plans we made based on those choices fall apart. So what do we do? We have a Plan B - already planned before our Plan A falls flat. Because lack of planning is often what causes us to spend more money.
Let's look at some examples. Let's say you are part of a family where the husband works and the wife wants to go back to work and needs to find care for her child. You might have a great option with a neighbor down the street who does daycare in her home for a very reasonable cost. You figure out the income you will make versus the cost of daycare and find it worth it to go back to work. Everything is great for three months when the neighbor informs you that she is going to stop doing home daycare. Now what do you do? Well, if you have a Plan B, you fall back on it. Go to your second lowest price daycare that you reseacrched and enroll there.
But what if there is no Plan B? Can you find another reasonable daycare setting in a short amount of time? Or will you have to quit your job or work for awhile with nothing to show for it because your hastily found new daycare is costing you too much? Having a plan B ahead of time will save you running around at the last minute, possibly helping you avoid paying too much for daycare, and potentially helping you keep your job that you otherwise may have had to quit.
Let's take another example where you have a good job but in a declining industry or in any industry at all for that matter. Have you given any thought to what you will do if you lose this job? Do you know where you would start scouting out jobs? Would you have your spouse take on a job? Having a Plan B ahead of time will help you find a new job more quickly than if you haven't come up with some other job options until your job ends suddenly.
Lastly, what if you are investing for college for your child. Your plan is for your child to go to State University which will provide a good education for a fairly reasonable amount. You are saving for college with a specific dollar amount in mind that would cover the cost at State U. But what if your child fails to get in to State U? What is your Plan B? Don't wait until he gets that rejection letter to come up with one. Make a plan B now. Plan B might be a community college for a year or two before reapplying to State U. Or perhaps Plan B is for him to attend a more expensive private college but have your child come up with half the cost to pay for it.
Whatever the Plan B is, the earlier you make the plan, the better prepared you are if your original plan falls through. Coming up with a hastily designed Plan B after the fact will usually result in higher costs.
Obviously, a Plan B will not solve all of the curveballs that life throws our way. There is only so much we can predict and plan. But it will lessen the financial impact if your first choice fall through.
In Real Life (IRL) - My husband is at somewhat of a crossroads in his job. He has already been informed that his company will close down in 18 months or so. So we have some time to come up with our Plan A as well as a Plan B. Our first choice plan is to move with his job. But because a move to a new city with a new job often does not work out, we are coming up with an alternative Plan B and even a Plan C becuase job searches are one of the most important financial decisions. Our Plan B is to have him look for a new job in our current city, while Plan C is to have me start working to tide us over if a new, equal paying job cannot be found.
Did we have a Plan B in place before he was told of his job closing? Well, not really. So we have been given the gift of time in that regard. But that is not always the case, and this situation has taught me the value of being prepared in case things change.
We've had to fall back on Plan Bs in the past for smaller, less important finacial choices. And it's always helped dramattically when there was already a Plan B in place rather than have to come up with one on the spur of the moment. For example, I was planning a birthday party for my little one who turned 3 last week (hard to believe!). In the unpredicatble July weather, I needed to have a plan B for the outside party I had planned. What if it rained (it didn't!) or if it was 100 degrees outside (it was!), what would I do? I could hastily find a restaurant or other indoor venue at the last minute when the weather report came out and could be considered accurate. Instead, I came up with a Plan B in advance. (I did this because of past experience has taught me that the weather never cooperates when I plan parties.) And because I did that, we were able to have a nice party indoors within our budget. If I did not have a Plan B in advance we would have scrambled at the last minute, and probably spent more money than I needed to.
Again, you cannot have contingency plans for every little choice in life, but the more Plan B's you have with regards to financial decisions, the less you will spend and the more you will save when having to utilize last-minute backup plans. (Picture shown are some boxes I spent hours last week on turning into Thomas trains for our indoor birthday party.)