We all pay taxes, whether it is sales tax, income tax, self-employment tax, property tax or capital gains tax, to name a few. However, some of us also pay Foolish Tax. You know the one: where you do something foolish and have to pay money to fix the mistake. Don’t read the parking sign and park in a residential district that is not yours? $50 Foolish Tax. Forget to pay a bill even though you have the money? Boom! $25 late fee of Foolish Tax. You turn suddenly with coffee in your hand and spill it on the person behind you. Instead of the romantic meet and greet, you get Foolish Tax of a dry-cleaning bill.
Why do we talk about this? When you are creating a Spending Plan (aka budget), it is important to include money for those unexpected items. It could be you expect the costs next year like buying new tires but get them this year because you ran over a curb (true story). Foolish Tax.
There are a couple of ways to account for Foolish Tax when you are looking at your finances. The first is to have an emergency reserve to withdraw from for Foolish Tax payments. An emergency reserve is generally three to six months of expenses in case of a job loss, a financial emergency, or having to pay Foolish Tax. Think of it as a bucket of water in the corner that you fill up drop by drop and occasionally have to dip into. When the bucket is full, there is no need to add to it, but it should be maintained and kept in a safe place.
The second way to account for Foolish Tax is to build it into your Spending Plan. Whether you call it Miscellaneous, Foolish Tax or any other name, it is always good to have some cushion in your spending plan for items that may cost more than you expect or for things you don’t expect.
We all pay Foolish Tax during parts of our lives. Although you can take steps to minimize it (thoroughly read parking signs, pay bills on time, or drive carefully), paying Foolish Tax is part of being human.