Image credit: Rishikesh Yogpeeth, Unsplash

Last year Denise and Sammy Jones lost their service jobs to the pandemic. Tony Niro had to leave his job to comfort his mother through her final days. Liu Kim got t-boned, broke a hip, and her boss wished her well as he hired her replacement. They couldn’t make their car, rent, and mortgage payments. They defaulted on credit cards and student loans. In a matter of months, they slipped into bankruptcy, shame, and the inescapable stigma of financial failure.

It was unexpected, unpredictable, and absolutely not their fault.

But with a different approach to their day-to-day expenses, they could have avoided the worst of it and emerged on the other side with their pride — and finances — intact.

The inevitable potholes of life

Each year, countless families face unexpected financial hardships. Like the fictional characters above, they struggle to meet their obligations while sheltering and feeding their families. The lucky ones reenter the workforce before it gets dire, while the unfortunate ones ride a downward spiral that rarely ends well.

What about you? Well, you can count on periods of joblessness, illnesses that cost dearly, bad financial decisions, and a slew of other challenges that separate you from your money. It happens to the best of us.

While many of these financial potholes are minor, those with limited financial resources find that rock bottom is close enough to touch.

Savings isn’t enough

Money fixes a lot of the potholes, but you need an enormous pile to ride out the really big ones. Most of us don’t have that.

56% of Americans have less than $5,000 in savings. 39% don’t have enough available cash to cover a $400 emergency. Experts agree you should have 3 to 6 months of living expenses set aside in an emergency fund.

But you probably don’t.

And even if you did, it wouldn’t be enough. You also need flexible expenses.

Flexible expenses

Buying a bright green couch on credit is easy, and it’s only $108 a month. Your shiny new cell phone is a trivial $44 a month. Your gym membership is $90, and the food subscription is $30 a week. That old credit card balance still costs you $250 a month, and your exchange condo in Mazatlán is double that. But you can afford it. You can afford it all because you have a nice job with a comfortable salary.

Until you don’t.

Or until you get a big bill, like a broken leg, a blown engine, or a pandemic.

Regardless of the size of your money pile, the more fixed expenses you have, the less you can flex to accommodate the unexpected.

The four expense types:

1. Loans: Pay them off! Mortgages are fine, but all others should be avoided or paid off in full every month.

2. Fixed: These expenses are almost impossible to rapidly reduce, so you’re stuck making these payments no matter what. They should be a small percentage of your monthly expenditures because they’re the biggest enemy of your financial flexibility.

3. Flexible: While these can’t be eliminated — they can be reduced quickly. You can ride the bus, shut off your subscriptions, read a book, and eat rice and beans, and wear socks with holes. Subscriptions and memberships should be on a month-by-month plan so you can shut them off or downgrade to lower service levels when you need to.

4. Elective: These expenses can be completely eliminated in a crisis. From a practical standpoint, you should limit these and maximize your savings anyway, but it is reassuring to know you can spend freely in this category without affecting your overall financial flexibility.

Target 50% or more to be a flexible superstar

You start the process by recognizing that every expenditure you make will fall into one of these categories and be aware — and critical — of the ones at the lower levels. Don’t add to those, and for maximum flexibility, try to avoid unbreakable commitments that are longer than a couple of months.

Next, you should comb through a month or two of expenses and put them into these buckets so you can see how flexible you are and how flexible you can be. Can you cut out 20% in an emergency? It’s better to target 50% or more. Talk to your partner and develop a plan to retire debt and shift expenses up the hierarchy.

Flexibility doubles your pleasure

Juicy Fruit Doublemint gum had a catchy jingle back in the 80s “Double pleasure is waitin’ for you..” and that little ditty still applies today.

If you’re flexible enough to reduce your living expenses by 50% in an emergency, you just doubled the time you have to ride out those problems. Further, if you have a decent stash of liquid capital set aside, you can double your pleasure again. The longer you can avoid dipping into your savings or charging living expenses on your credit card, the better.

And, yes, you should listen to the experts, and if you haven’t already, you should set aside 3 to 6 months of expenses. That, along with the ability to flex your expenses like a contortionist, will buy you a ticket through almost all of the financial potholes the world can throw at you.

Flexibility is even more important in retirement

Financial flexibility is important throughout your life, but even more so in retirement. Our old joints may not be as flexible as they were when we were younger, but we can flex our finances with the best of them.

And we need to!

Half of all American families have no retirement savings. They end up retiring on what they get from pensions and Social Security, and there’s not a lot left over.

Not a lot left over for potholes and pandemics!

And not a lot of wiggle room. You can’t move back in with your parents, and it’s hard for 70-somethings to find a job. You can’t go back to school and learn a trade, and options for loans aren’t there if you don’t have a job.

You don’t have the same options as the younger crowd, so be aware, prepare, and be flexible.