Budget Sense

If you have been budgeting for years now and the process is second nature to you, then this post is likely not for you. But you can still read on, as you may get a tip or two to make budgeting even easier and more fun for you. For the rest who struggle with budgeting, never did it before, or are interested in getting started, read on, and you will likely get enough to get you started. Budgeting, for those who have mysteriously never bothered to learn about it – or will pretend like you just came out of a cave – is simply the process of creating and managing a plan for your income and expenses. The idea is to spend within your means, while ensuring all items on your budget are met.

Create one

First step to stick to a budget, is to create one in the first place! Without a budget, you have no idea what is coming in and out, and therefore, are likely spending more than what you have coming in.

Review your budget regularly

Just because you have a budget, doesn’t mean you follow it blindly forever. Yes, you do need to stick to it, but you also need to review it every every 6-12 months. This way, you can eliminate things, reduce or increase certain items etc.

Watch your spending

Go over your spending and see if there are any trends, where you are spending money on certain items more than others. For example, do you have too much of your budget going to subscription services (Netflix, Spotify, Prime etc)? If so, it is probably time to eliminate some of these, even if you are too used to them by now.

Use Cash or Envelope System

Consider using cash or an envelope system for certain budget categories. Withdraw the allocated amount in cash and place it in labelled envelopes for expenses like entertainment, dining out, or personal spending. This approach provides a visual representation of your available funds and helps prevent overspending. I have personally been using this and it is simple but extremely effective, given its visual nature.

Discipline and Reward

As sticking to a budget needs some discipline, be sure to build that muscle and have some patience. With the passage of time, things will get easier and becomes second nature to you. In fact, I have often preached about the liberating nature of budgets, as opposed to the popular belief that they restricts you from having a better and more fun lifestyle. On the other hand, be sure to reward yourself from time to time for sticking to a budget, but this is better done at the start of forming a budget than to make it a lifelong thing. As mentioned above, once you have planted this into your subconscious, sticking to it is a matter of autopilot, where little to no effort is required. And with that being the case, you don’t need to reward yourself for something that happens in the background and requires virtually no effort.

Keep in mind sticking to a budget requires commitment and consistent effort. It may take time to adjust and develop new spending habits, but with perseverance, you can successfully manage your finances and achieve your financial goals. This includes financial Independence, where money is longer a life stressors, as you have enough for it to fulfil all your needs and wants, with enough to spare.

You’re cruising along with your trusty car, and everything seems fine. But let’s face it: in 5 years, you’ll eventually need to replace it. It may seem daunting to start saving for such a big purchase so far in advance, but here’s where you’re mistaken. Now is actually the best time to kickstart your savings plan.

But what about those smaller yet significant expenses looming just a few months away? Take, for example, a dream family vacation to the Caribbean, costing a few thousand dollars. With exactly 5 months to save up $5,000, how can you effectively budget and save for such an adventure?

Break It Down into Manageable Pieces

One effective strategy, commonly used in goal-setting and project management, is to break things down into smaller, more achievable targets. For your upcoming vacation, instead of fixating on the $5,000 price tag, focus on saving $1,000 per month over the next 5 months. By shifting your perspective, you’ll find it easier to grasp and rally around these more digestible milestones.

Create a Dedicated Bank Account

Given the substantial amount you’re saving, it’s crucial to establish a separate bank account exclusively for your vacation fund. This separation sends a clear message that this is a special project requiring your utmost attention. By compartmentalizing your finances, you’ll maintain a laser-like focus on the bigger picture without distractions from day-to-day expenses, debts, or other financial commitments. In other words, no matter what’s happening elsewhere, this account will be your unwavering resource for funding your dream vacation.

Explore Multiple Income Streams

Unless you have a substantial income with zero financial obligations, you’ll likely need to tap into additional revenue streams to achieve your savings goal. Begin by calculating how much money you can contribute each month from your current job, and then brainstorm ways to secure the remaining funds. Can other family members chip in? Are there upcoming bonuses or windfalls that can be allocated entirely or partially to your vacation fund? Consider taking on a side gig or part-time job. You can even explore opportunities for extra hours at your current workplace by discussing the possibility with your manager. Lastly, declutter your home and sell any items you no longer need online. Remember, the more income streams you can generate, the easier it becomes to save for your eagerly anticipated getaway.

Remember, the key to success lies in starting early and planning ahead. By giving yourself ample time and diversifying your income sources, you’ll significantly increase your chances of reaching your savings goal. Let’s embark on this journey together and make your dream vacation a reality!

You have been paying off your new iPhone for two years and it has now been fully paid off and come off your bill: your phone bill is now $30 less every month. You happen to be a lucky (or good employee) who just got a 5% raise to their salary. Or maybe you are a good driver and your new insurance premium is $40 lower per month.

These are all examples of new money coming to your budget. Not a bad position to be in, especially if your budget was already stretched to the last penny.

The natural question that comes to mind is: what do you do with this new extra money, assuming it is anywhere from $25 to $50 per paycheck (bi-weekly pay) ? do you just spend it? do you save it? or maybe a combination of these and others? First off, and unless you already fulfill your other obligations in terms of saving and have no debt to pay off, the worst use would be to just spend it. This is money you never had it so you can’t just spend it. There are much better ways to put it to use instead:

Start or increase charitable giving

There is an inspirational meme I came across recently: “when god blesses you financially don’t raise your standard of living, raise your standard of giving instead”.  So instead of wasting this extra money, dedicate some or all of it to charity. Assuming you have an extra $40 in your budget, that would be barely enough for a dinner night out for two, whereas dedicating it to charity would go a long way and feed many people at once.

Pay off Debt

Unless your debt is $1000 or less, getting an extra $25-50 in your budget and using it to pay off debt, may not be significant enough if your debt is a lot bigger (say in the tens of thousands) . But if you weren’t paying enough towards your debt reduction, then it makes sense to dedicate this newly found money to go towards that. For example, if you were only paying $35 per paycheck, you could double that to $70 which means you are now paying close to $2K towards your debt elimination.

Saving and Investing 

I often tell friends and family that you can never save or invest enough money. The more the better. The higher the amount your save and invest, the faster  you get to financial freedom and independence. So while putting an extra $650 to $1000 towards saving and investing each year may not seem like a lot, it does when it is being added on top of existing money that you set aside for this purpose. For example, if you were saving just over $4K a year, adding an extra $700 a year will put you over $5K a year and with the passage of time and magic of compounding, your money will exponentially increase after just a few years.

When new money comes to you or is freed up from your budget, you are free to spend it as you like, since it is your money after all. But there are better uses for it than to just spend it. Think of this as money you never had, hence it doesn’t make sense to just blow it on useless purchases. Instead, think of helping others, paying off debt or long term in the form of investments.  Any one of these will have huge positive impact and returns for years to come.

As it should be clear by now, our personal budget is a way of controlling our unlimited wants to match our limited incomes. We only have so much money to spend, save and enjoy.

But what if your budget just can’t accommodate your excessive spending? So much so that your paycheck doesn’t cover your spending, so you are forced to use your credit cards or borrow from others. Let us face it, this situation can’t last forever. Sooner or later, you will find yourself in deep debt, or worse yet, bankrupt.

What is the solution? How to force yourself to spend less and reconcile your spending with your budget? We need to be sure that we are only spending 100% of what we make or less, and not even 1% more than that. Let us go over a few proven and effective therapies for those who like-or are spending sick- to spend like there is no tomorrow:

1-Realize this is simply not sustainable: first, you have to admit and aknowledge that you can’t keep doing this forever and that you have to bring your spending under control and within your budget limit.

2-Budget for big and necessary purchases: if there is something that you absolutely have to buy, start budgeting for it well in advance

3-Avoid the trip to the mall: if the mall is where you spend your money the most, then stopping your spending is as simple as not going to the mall in the first place. And If this is easier said than done, then maybe go less? While the mall is here is a metaphor for any place where you spend with ease, the idea here is to be mindful of any place – including online shopping – where you can’t control your spending.

4– Track your spending: Keeping a record of your daily, weekly or monthly spending can help you identify areas where you are overspending and make adjustments accordingly. In other words, by finding hidden trends, you are able to correct them.

5– Find alternative ways to fulfill your wants, needs and desires: Instead of spending money on entertainment, try finding low-cost or free alternatives that can bring you joy and satisfaction. For example, instead of spending money on movies, you can do it at home using Netflix or other streaming service, and even make your own popcorn and foods. It will save you a significant amount of money.

To effectively reconcile spending with a personal budget, it is important to admit unsustainable spending habits, budget for necessary purchases, avoid overspending triggers, track spending, and find alternative ways to fulfill wants and needs. By following these steps, individuals can bring their spending under control and within budget limits, reducing the risk of debt or bankruptcy.

We are all feeling the pinch from inflation these days, but some probably more than others, depending on their budgets, income, lifestyle etc. To keep things simple, all you can do is to control what is in your control and that starts with what you spend your money on. Let us go through some items that are a bit easier to eliminate or simply reduce, which may not not be as obvious to some:

Drive less and save on gas

I have been doing this for well over a year now. On average I have been driving 10-20% less per week and that translates into significant savings on my gas budget. I try to do multiple things per trip and schedule our kids errands and activities to be close to each other when possible, especially since they occur on a weekly or daily basis. I also eliminated it cut down on my leisure and rural driving. Of course, by driving less, you not only save on gas, but reduce the wear and tear on the car and save on mileage. Compared to previous years for example, my average annual mileage is down by about 18%.

Cut or reduced monthly subscriptions and memberships

This is a big one, and although each on their own may not seem like a lot , they can quickly add up. Let us go through some common ones (I have our estimates for what each may cost) . As you can see , eliminating just 2-3 of those could save you over $50 a month or $600+ a year.

• Netflix: $18-20
• Spotify: $20
• Amazon Prime membership : $15
• Magazine or paper subscriptions : $30
• Gaming pass: $30
• Monthly app subscriptions: $10
• GYM membership if you rarely use it: $50

Cut down on dining out and food delivery

This is a big one and can add up even if you don’t do it often. First off, when you order from these various food delivery apps such as DoorDash and UberEats, you are effectively paying a 25% premium when you include the higher cost for the delivery menu, surcharges, delivery and other fees, and tip for the driver. Same applies to dining out where it can get quite expensive, especially if you are taking a full family. Reducing it to just one delivery or dine-out trip a month will save you a lot of money, especially if this is something you do on a weekly basis. This also includes buying lunch at work instead of brown-bagging it. It may be hard at first but you will quickly get used to it, especially when you see all the savings.

Set a budget when grocery-shopping and be strict about it

As prices have gone up as a result of inflation, and while we know we are spending more on groceries than before, we are not fully conscious that we may be paying 25% or more than we did before and that is a lot. And as mentioned before, since the price we pay is outside our control, we can at least control how much we are willing to spend. For example , if you are a family of 3, you can commit to spending no more than $150 every two weeks. As you start scanning your items, start with the essentials and as you get close to your budget limit, you can return the rest of the stuff that are yet to be scanned. In other words, your budget limit comes first and don’t have to scan and buy each item in the cart. Better yet, follow an old and popular advise to eat before you go grocery shopping, as it is psychologically proven to reduce how much you spend. In other words, getting groceries while you are hungry will induce more spending.

Travel should be off of your list for now

Unless it is already booked or you have gotten a deal that only comes once in a blue moon, best to put off that vacation for now. With everything costing more these days, that vacation will set you back hundreds or even thousands of dollars, money that could be much better spent on something much more important like paying down debt or saving.

Other luxury or big ticket items

During these expensive times, that Gucci, Michael Kors or whatever other expensive luxury brands out there can wait. Same goes with big ticket items like home furniture or appliances, unless you absolutely need one and can’t get by without. The idea is that as long as these are luxury wants, optional wish items, and not an urgent priority, the money is much better be saved for a rainy day.

Remember, it is not just inflation but a recession too which could end up costing you your job. Be prepared in case that happens, while hoping it never does. Either way, you will be prepared and in good shape. As the saying goes , better have it and not need it than need it and not have it.

2013 is almost here and it is time to think about your finances for the new year and how to ensure they are in their best shape ever. With these simple steps and checklist, you can make it your best year ever. Most of these are things we have talked about extensively in the past, but we now put it in one clear unified list:

1-Start saving money: don’t delay! You have to start this from Day 1 and not miss a day. If you don’t already have a savings account, ensure you open one immediately to take advantage of the compound interested. If you live in Canada, ensure it is a TFSA account, which allows you to save up to $5,500 a year, with all interest earned being tax free.  And speaking of saving money, ensure you pay yourself first when getting paid at work.And last but not least, don’t forget to open up and contribute to an RRSP (or other retirement saving programs) which will help with your retirement as well as for tax sheltering purposes.

2-Have a Piggy Bank: yes, a piggy bank or any jar where you can save your coins and even bills. You may be asking yourself why you need a piggy bank if you already have a real saving account at the bank? Well, as per our previous advise , the more sources of savings you have, the more money you will accumulate. It is as simple as that. So having a piggy bank, in addition to your real saving account, will help you save more money. Throw in any spare change you don’t need in there. In fact, occasionally, you will have $5 or $10 bills that you don’t need to spend, why not throw these in there too? On Dec 31 or so of 2013, you get to open the jar and enjoy all this money for a vacation, a big purchase or just add it to your bank savings.

3-Review all your bills and subscriptions: go over all your monthly, bi-monthly, quarterly and other subscriptions you pay for on a regular basis.  This includes your home and auto insurance. See what can you downgrade (cable TV?) or even cancel (newspaper delivery?) Chances are, there will be things that you no longer need and can cancel. This will save you money monthly.  Since it is a new year, you want to start fresh with everything and this would be the ideal time to do this.

4-Review your budget: related to the previous step, go over your budget and review it in full. Is there anything that needs to change? Is there any item that can be downgraded, with the resulting money going towards your savings? If you can manage to find even $10 of saving a month from your budget, you have done a good job!

5-Think about your taxes for the new year: if your work situation was such that you had to pay back to the government when filing your income tax last year, you need to do something about it this year. Instead of paying the government more than you already have, why not take some steps to ensure you don’t or even get something back? While the scope of this article can’t cover what does or doesn’t qualify as an income-tax eligible expense, there are some basic ones that should be on everyone’s list. These include RRSPs, charitable donations, medical expenses etc. Ensure you have all of these in one envelope and label them with the appropriate year (2012, 2013 etc.) When income tax filing season is here, you will be ready.

Following the above steps will ensure you stay afloat financially in 2013 and have money to save, spend and enjoy.

Start planning now while you still have some hours left in 2012!

Do you find yourself spending your paycheck within a few days and then nothing is left to pay off your bills, let alone for savings?

There is a simple solution: having two bank accounts.

One will be your central and main account, where your paycheck is deposited. You will use this to pay off bills. You will set this up to automatically transfer money to the other bank which is dedicated for discretionary spending. The amount you transfer will be determined by your budget of course.

The second one, will be just that, secondary, for discretionary spending. This is the money you can spend, without worrying about spending all of your money. As long as you separate your money-depending on what each one will be spent on-you won’t have to worry about spending most of your money on one thing and having little or nothing left for others (bills, saving etc.)

Alternatively, you can follow ‘envelope budgeting‘ and not worry about having to create two bank accounts.  With envelope budgeting, you withdraw the money as soon as you get paid and then allocate them-using a real envelope or something similar-to different categories.

Not to be ignored, this is all assuming you already have a ‘savings account’ to which you transfer money automatically.  If you don’t, you need to create one right away!

I noticed something about the way I pay for big purchases which may not be very obvious to people often: if I have budgeted for a big purchase, I will actually pay for it with a smile. In other words, I am not feeling a big pinch from having to pay so much money for something.

Reversely, when I haven’t budgeted for something or I am suddenly faced with an emergency purchase or payment, I do feel the hit to my pocket.

Yes, budgeting does make a huge difference when it comes to the psychology of buying or paying for something. It makes you pay with confidence and no regret or any financial pain.

The point is, if you budget for big purchases in advance, or if you have saved money for an emergency, you won’t feel a big hit from an unexpected emergency.

Certainly, for you to save for a big future purchase, you have to know about it in advance. The more time you have for it, the more you will be able to save. In other words, and unless your car is done or completely damaged in an accident, you can’t just wake up one day and decide you are going to buy a new car. Unless you are very rich or have already saved lots of money. Rather, you would would have a saving and budgeting timeline that starts at least 6 months to a 1 year in advance.

As for unexpected emergencies, such as fixing a leaky roof or replacing the furnace, you are expected to always have some money saved for an emergency. So it is not a matter of whether you will have an emergency or not, you should have money allocated for it regardless.

This of course is different from wasting money on something you don’t need just because you have the money. That is a totally different thing and nothing more than wasteful spending.

So, always budget for future expenses and emergencies even if you can’t predict them or see them in the horizon.

Should a married couple have one family budget or should each do it on their own?

To begin with, it is best that we have a budget, period. As to the question of what is better, a combined or separate budgets, that is up for discussion.

Best way to Budget as a Family

Most families would actually have some sort of a combined budget, where the husband and wife agree on which items each will cover, how much will the two save etc. The idea is to sit down and talk, discuss what is coming in, who will pay for what, and how mush saving they need to make.

Going it alone without any discussions about the role that each will play is a recipe for disaster. ‘Financial issues’ is often cited as one of the major reasons why a lot of marriages end up failing and families splitting.  To be more specific, these couples often fail to discuss their situation and how they will budget as a family. The end result is disagreements over who will pay for what, what will they buy and what should wait etc. Another advantage to having a family budget is to act as a system of ‘checks and balances.’ In other words, if one family member wants to spend on something, they can’t just do it alone. They would have to discuss and agree on it with the other and come up with a decision. Of course, we are talking large purchases here.

Agreeing on a budget early in marriage is extremely important. In fact I would suggest couples sit down and discuss their budget even before they are married and living together.  It prepares you for what is to come and helps couples avoid any disappointments. Budgeting should depend on the income for each, what financial or debt obligations they already have and whether there is kids involved (yet).

How to Budget together?

One ideal way to budget for a family is to create a shared bank account-in addition to the individual accounts that each will have-where each will contribute a certain amount or percentage from every paycheck.  Using that account, you will then decide how you will pay for the various things, including shopping, mortgage, bills, kids expenses, saving for the future etc.

One reason why it is a good idea to create a shared bank account is to help couples feel like they are indeed working together for one common family purpose, as opposed to each working on their own. But like I mentioned already, that doesn’t negate the need for individual bank accounts for each because you still have to have a bank account where you can keep your money for any personal spending etc.

Budgeting for Kids in the Family

Although we will cover the role of children in a family budget in the future, for now, it is just important to remember that kids should have their own category in any budget. Whether it is for their own monthly spending, future education savings, parents should allocate something-however modest-to their kids.  Just because they are minor and don’t have a lot of expenses doesn’t mean you don’t account for them. Quiet the contrary actually. If you budget for them now, they will thank you later when they are ready to peruse a higher education.

If you are married with a family and don’t yet have a budget, get going right away. Create your first budget to ensure that you live a happier and more financially-secure life.

When something dramatic changes in your life, how do you respond? do you change your lifestyle around it or do you change your budget instead?
For example, given the sharp increase in the price of gas in the last few weeks, do you go back to your budget and increase the amount allocated for gas? or do you keep your budget the same and instead adjust your driving, by driving less for example? how about an extreme change in weather, say to much hotter or colder? do you make adjustments at home or do you change your budget to give more allowances for heat/AC bills?

These are questions you will likely face with a personal budget, and answering them will require some analysis and number crunching.

-Is the change permanent, short term or unknown? if it is a short-term change that won’t last for long, then you can go through it and do your best to adjust to it. In fact, if you are prepared financially, you may not even need to make any changes. If the change is permanent, then you will have to sit down and do some analysis in terms of what needs to change, your budget or your whole lifestyle.

-Which one will give you a better value and utility? it is not just about the money but the value and return you get (health, life, family etc.) In other words, changes to your budget may be the way to go if it will make your life better. Example would be in buying a car. When making the decision as to which car to buy, you may come across a car that will cost a little more and even more gas than what you currently have. But this car will give you and the family more value, safety and comfort overall, so it is worth adjusting your budget for it, for a better lifestyle.

-How easy is it to make changes to your lifestyle? if it is easier to make a budget change and almost impossible to change the way you go about your life to accommodate the new changes, then go for the former. If your company is experiencing a slow season and your hours are reduced as a result, you may not want to look for another PT job due to family commitments. In a scenario like this, you would find it hard to make changes to your lifestyle, so instead, you make changes to your budget by saving less money for example.

Can you make small changes to both? in certain situations, it may be easier to make small changes to both your lifestyle and budget, rather than a big change to one of the two.  This way, you may feel a smaller hit. Example would be the introduction of a new member to a family through birth. With a new baby in the family, you will have added expenses and time commitments, not to mention all the time and energy needed. You can’t respond to such a dramatic change to the nucleus of your family by simply modifying your budget only. You will have to do more changes to your lifestyle as well. You may need to stay home more often to take care of the baby. Of course, the alternative would be to hire a nanny and pay her well over $1,200 a month, which would probably obliterate your budget. But by making small changes to both your lifestyle and budget together, you get to feel a smaller sacrifice from this huge change to your life.

The point is that you will need to apply different changes depending on the situation. Once size doesn’t fit all. And as we already seen with some examples, you don’t always have to go with one and not the other, but can in fact incorporate small changes from both.  You should hardly ever resort to making dramatic changes to one and not touching the other. If it is a huge change, it is best to split the responsibility between both your budget and your lifestyle.

Just remember, one of the last things you should touch when adjusting your budget is your savings. It is easy to look at your savings and think it is the easiest thing to sacrifice but it doesn’t have to be. With careful planning and reassessment, you may realize that making small changes to your lifestyle may spare your savings from being reduced or even eliminated from your budget.