Clouds Ahead: Presumptive Errors

Personal Money Planning |

By Gary Silverman, CFP®

In this 7th installment of my whacking-you-with-a-fish series, we look at a recent event that shows why presumption is a problem.

Last week I gave you a list of Garyisms (new word) that focused on spending. Today we have a related topic. A couple of weeks ago, Chantale Belefanti, a reporter for KAUZ, asked for my reactions to the Supreme Court’s recent ruling against the student loan forgiveness program championed by President Biden. This article is not about that program, exactly.

This article is about the problem with presumption—otherwise known as counting your chickens before they are hatched.

When the loan forgiveness program was announced, it was immediately challenged. So, from the get-go, there were doubts it would even happen. Nevertheless, a lot of people acted as if it was a sure thing. Budgets were built around the idea that loan payments, which had been halted during COVID, would never resume. Spending decisions followed which would be unmanageable if student loan payments continued. And now, because of the presumption that student debt would be waived many of those people are facing a money crisis.

This isn’t to make light of their plight. But just because money is tight, the word “temporary” did not disappear from the loan payment COVID pause; Nor does it influence the Supreme Court vote.

I have seen many assumptions made over the years: A Christmas bonus is coming, or a cost-of-living raise will happen, or that overtime will continue. Then a nasty economy takes it away.

In fact, every time you borrow, unless there is cash sitting in the bank to back it up, is a form of presumptuousness (which my spell checker assures me is a word). In loaning the money the lender will assume things will go wrong and take measures to protect themselves. Make sure you do the same.

Presuming money is going to come in, or an expense is going to go away, can put you into crisis mode. Some things are more-or-less guaranteed, but I caution about counting those soon-to-hatch chicks, or in this case, cash, until it shows up in the bank. No problem making spending plans in anticipation—just hold off on the spending itself.

This is probably a good time to talk about having a fund set aside for disappointments you were not expecting. Whether you call it an emergency, rainy day, or contingency fund, the idea is that you have a wad of cash sitting around (or, more safely, in the bank) for when the unexpected happens. Surveys have shown that as many as half of American families have no idea how they would handle a surprise expense of less than $1,000.

In this case it is good to presume that something will happen…because it inevitably will…and have that money safely tucked away for the what ifs in life.

See you next week.

May God protect the innocents in Ukraine.