Breakage

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Retail stores allocate a percentage of their revenue for breakage, to cover losses due to damaged, defective, or stolen inventory.

They also use it as a warning signal. If they allow 2% for breakage, for example, and they have a month or a quarter with 3% breakage, they know they have a problem with something (or someone) and can look into it.

Lawyers should also have a breakage fund. Your accountant may have already set this up for you under “contingencies”.

Contingencies cover uninsured losses: claims, deductibles, lost deposits, bad checks, embezzlement, write-offs, and so on.

If you don’t already have this, consider it. Allocate, say, 1% of your net revenue, to cover contingencies. Deposit the money in a separate account, to prevent yourself from dipping into it.

If you sustain a loss, you’re covered. If you don’t, you can move the funds into savings or another account.

There’s another type of contingency fund you might consider.

Call it a “mad money” account. Or a “don’t worry so much” account.

You can use it to buy the deluxe version of something you want when you can only justify the basic version.

You can use it to buy things you want but don’t need.

You can use it to cover a loss when you buy something you never use or that breaks and can’t be returned.

Without guilt. Without giving it a second thought.

If you’re the type that beats yourself up when you make a mistake, this might be for you. If you’re typically tight-fisted about your budget, this might be for you.

Put $100 a month or $200 a month or $500 a month into a “I don’t care” account and use it to cover mistakes, flings, extravagances, and losses.

Take some chances. Live a little. Don’t worry so much about mistakes.

Breakage happens. But now, you’ve got it covered.

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