I recently got a wisdom tooth removed. My dentist had been nagging me to do it for years. Why the delay? I don’t have dentophobia. I’m not an anti-dentite. I just didn’t want to save the money (or spend it). But for the grace of my flex account, I was able to squirrel away nearly $700 (tax free, no less), and pop that tooth out.
My flex account automatically takes money out of my paycheck and saves it for medical expenses. It’s an example of behavioral economics. Traditional economics assumes people make rational decisions; behavioral economics assumes we’re human. And flawed. And irrational. And it creates systems to correct for these weaknesses. Instead of assuming that I’m a rational person who knows I need to pay the dentist and will save money to do so, behavioral economics knows that I’m much more likely to save money if I don’t have to think about it. Take $25 out of each paycheck, put it in a special account, and voilà, I can pay the dentist.
I think we should transfer this concept to housing upkeep and rehabilitation — especially for first-time homebuyers. First-time homebuyers are typically cash poor. They’ve saved money for a down payment and closing costs and they’re tapped out. Anybody who owns a house knows they need to keep some cash handy for, say, a new water heater, furnace, or roof. Why not make a flex account for your house then? Add $50 to each mortgage payment, put it in a special account, and voilà, I can pay the roofer. I won’t even need to think about it.
Great idea, Kelly! If only we could get those deductions tax free,,,but either way, no matter the age of your house, there is always something that needs to be done.
Kelly Bennett said:
When we were seriously broke (our business went belly up in the mid 90s and took almost everything we had with it) we needed to pay bills from one income. I set up a system using little glass jars (sounds crazy I know, but it worked) Each jar stood for some part of our daily, monthly, yearly expenditure. Each pay check I would cash it and allocate a bit of cash into each jar based on expected bills. At times it got a bit hairy but the theory was if the jar was empty we stopped spending. We made it through some tough years using this system. I’m a very visual person so if I can see it, it exists, it’s when I cannot see stuff that problems occur.
P.S. we got very excited if there was a bit left over in ajar after a bill was paid, especially those bills that only get paid once a year………. party!
Kelly Bennett said:
Visual budgeting — like it!
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