Welcome to the “When Life Happens” series. The purpose of this series is to identify different scenarios in which one comes across certain challenges in life that they’re not quite ready to face. These individuals will be faced with many tough challenges and each challenge will include the actual outcome and the ideal outcome. My hope is for you to learn from these different situations and hopefully not find yourself in them one day. Of course we face many situations in life where we have no idea how they came about. Proper planning is the key to proper execution. I hope you enjoy the scenarios and welcome to series 1!
Meet Steve aka the “Cool Guy”
Steve is a 20 year old college junior enrolled at one of the top universities in the country. He’s a very sharp student and is known to be the true definition of a ladies man. Steve is able to fund his college education through scholarships/grants, loans, and has a federal work study job. Steve pays about $15,000 in tuition and fees each semester and has about $10,000 in scholarships/grants each semester. He takes out about $5,000 in loans each semester and his federal work study job pays him about $1,500 each semester, which he uses to cover his “other expenses.” Unfortunately, Steve does not save or invest virtually any of his money and has a very poor shopping addiction where he must buy every new designer shoe that’s trending in his community (aka Jordans).
Steve met this girl named Eva one day in one of his classes and he became really interested in this girl. They talked a decent amount, went out to the movies together, and started getting closer to each other throughout the Fall semester. Steve tried his very best to impress this girl and you know he had to stay fly. Steve had on the freshest pair of Jordans you can imagine and he started attracting even more ladies. Steve got an invitation to one of the biggest private parties hosted in the semester and to keep up with his status, Steve had to go to this party. His now girlfriend, Eva, was at the party as well, and he still put his best foot forward to impress a girl that he already got. Steve never had alcohol in his life and noticed a drinking game going on at the party. Being the cool guy that he is, Steve decided to play the game and had his first ever drink.
And guess what? Steve couldn’t hang. After a few drinks, he became so dizzy to the point where they had to call the ambulance to take him to the hospital. And the medical/ambulance bill? $2,000. Keep in mind that Steve has virtually no money in the bank since all of his disposable income goes towards buying new shoes. Thankfully, Steve was taken care of and came back to life the next day. But the medical bill? That’s another story.
Steve is in the biggest jam of his life and has no clue how to handle this bill. All he had was about $100 in the bank to put towards the bill and nothing else. His bill was due in 30 days and he knew he had about $500 coming in from work for those 30 days, but that leaves him with $1,400 still in the hole. He asked his parents for money, but they had none for him since Steve comes from a low-income household. He asked his girl Eva, but she had none either and even broke up with the man a week later for embarrassing her at the party. He’s running out of options and his last resort is to take out an emergency loan, which he thankfully got approved for and was able to cover the medical bill. Steve quickly learned his lesson and knew that it was time to start saving some more money because when life happens, things get real.
The Ideal Outcome
As we can see, Steve dug himself in a really deep hole. Had it not been for the emergency loan that saved him, he would’ve potentially had people come after him demanding payment from an unpaid bill. Of course in today’s day and age, (some) people don’t immediately come after you. Instead, you would face late payment penalties, interest charges, etc. And you also take a hit on your credit score for a missed payment which can have a detrimental effect on your ability to apply for a loan.
With that being said, Steve could’ve taken many steps to avoid this problem. First and foremost, it’s impossible to predict the situation Steve was in as it was an emergency and he had no clue what was coming. However, he could’ve taken certain steps to mitigate the impact of the situation or the like. For one, Steve doesn’t have a budget. A budget would help Steve manage his income and expenses and allow him to set certain goals such as savings, investments, etc. Next, Steve has a shopping addiction. Although it’s extremely difficult to get rid of an addiction, Steve does not have to buy every new name brand shoe that comes out. He can buy a few, but to buy every single one is simply not intelligent. Next and related to the previous two steps, Steve only had $100 in the bank. Based on his disposable income, Steve should have much more money in the bank.
Assuming the numbers remained fairly the same during his freshman and sophomore year, and Steve had about $500 in other expenses on top of his tuition/fees/room and board each month, he should have about $1,000 in disposable income each semester. Steve can save a portion of this $1,000 each semester (i.e. $500) and have a fairly comfortable amount of money in the bank. So by the beginning of his junior year, if he saved $500 each semester, he should have exactly $2,000 in the bank (excluding interest). And guess how much the medical bill was? Exactly $2,000. Clearly the numbers will hardly ever work out this perfectly, but the point is, had Steve had more money in the bank, he could’ve been in a better position than he was. Instead of taking out that emergency loan and digging deep into his paychecks/savings, Steve could’ve knocked out the expense immediately or had no problem paying it when it was due. What if he got denied for the emergency loan? What if another emergency happened? Do you see where this is going? To put yourself in a better position for emergencies, ensure that you have a decent chunk of money saved in the bank. How much of it depends on your goals and unique situation. Just ensure that you have a budget in place and stay within the boundaries of that budget.
What would you have done?
Note: I would like to give credit to Damian Azubuike for coming up with this topic idea.