Budget Sense

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.

When reading a financial tip or advise, we sometimes shrug it off and think that we already know about it. But knowing is different from applying.

This is the case with spare change and how they can help us save money, but it is still not obvious enough to make people keep them handy.

Having coins handy can go a long way in reducing your spending and in turn maximizing your savings. When you break a bill, no matter how big, chances are you will spend the leftover money faster than if the bill was never used. Having spare change on the other hand will help you avoid breaking up big bills. This trick is more psychological in nature but it works.

The thing we buy most often while at work or driving is probably coffee. And this is pretty much an everyday occurrence. If you save enough change, you could go days without having to break any of your big bills. Which means more money in your pocket.

If on the other hand, you need to buy something that will cost you a a dollar or two, and you have no change, you will have to break a big bill, like a $20. What will happen next, you are left with some change and smaller bills. Once the big bill has been broken, a psychological barrier has also been broken. Now that the bill is smaller, you are more likely to spend it. And as it gets smaller, you will be even more and more likely to spend it all, and so on.

Therefore, and to keep your bills intact, and not have to break a $50 for a $2 coffee, be sure to have as much change handy as possible. It is a paradox to think that having spare change can act as defense against spending your bigger bill and it is. Try it, and it won’t be too long before you get into a habit of not wanting to break your big bills and only use spare change for smaller purchases. 

In the beginning of last year, I wrote about a new resolution or ideas for 2022, where it would help me to both lose weight and save money. Win Win. Can’t beat that. For those who didn’t get a chance to read the post last year, the idea behind ‘Junk to Health to Wealth‘ is to cut down on junk food spending and save that money instead. Although I didn’t spend a lot of money on junk food and dinning out in general, I still did it couple of times a week, easily adding up to $25-30 if not more, depending on whether we dined out with the entire family. And that was even before the current inflation which would add an extra 10-15% to the total.

So how did my resolution hold up and how did I do in 2022 and did I carry this into 2023?

Glad to report that I did great! Let us go through some numbers and figures.

With some minor exceptions here and there, I stuck to my intention to only buy fast food once a week, maybe twice if it involves family outings. In other words, I cut junk food purchase to half or less. Meaning half the money and calories saved.

How much is that in terms of health impact?

In terms of calories saved and how that translates into better weight management, the math is rather simple and clear: assuming I cut 1.5 fast food purchases a week, each having an average of 1100 calories (for a combo) , that works out to 1650 calories a week , multiplied by 52 weeks in a year, and we get just over 85k calories saved a year. With each pound having 3500 calories, that means I saved myself close to 24.5 lbs.!

What about the financial gains?

Using the numbers above and assuming the average combo meal is $8, and with 1.5 combos eliminated a week, multiplied by 52 weeks a year, comes up to about $625 saved! That is pretty significant savings, especially when you couple it with the above health gains. And I rolled this saved money into a saving account and from there I used it to purchase dividend paying stocks.

Making one effective decision can have a positive ripple effect on multiple aspects of your life. I have found this to be true through my own kexperience in 2022, and have continued to apply this principle in 2023. Through 3 weeks of January, I have made two fast food purchases so far, which is in line with my goal and even better.

PYF: the greatest and most underrated acronym on your road to financial riches and freedom.

Pay Yourself First, darn it!

If you pay yourself first , you don’t feel the pain. You get it out of the way and you can then focus on spending, enjoying and using your money to helping others. No guilt. The reverse could lead to guilt and ‘what ifs’.

First, you need to automate it so that the money is being redirected to a saving or investment account before you even see it. This removes friction and any pain points. It takes minutes to set up , but the future rewards will be massive and may help you live on passive income way before your official retirement age.

How much should you contribute? This will vary from person to person, but the more the better, assuming you have room to cover your living expenses and other needs. And while 10-25% is ideal, anything is better than nothing. For example, if you make $1250 bi-weekly and can only afford to set aside $50 a paycheck, that is still better than not putting anything at all. Overtime, as you cut expenses, increase your income or both, you need to increase this amount.

Imagine if you you pay yourself last. First, there will likely be no money left and will feel like a burden to save. Furthermore, if you have to rely on manually saving money, you are adding friction to the whole process which just complicates things. When it comes to wealth accumulation, automating things and reducing friction goes a long way. On the other hand, adding friction to negative habits you want to break is a the right way to go. For example, make it harder to spend money. That is adding friction to the process.

Think about it: we already automate bill payments , why not automate PYF? there are consequences (interest penalty) to not paying your bills on time but no visible or immediate consequence to you not paying yourself by saving money. We need to mentally change that so that paying yourself first and automating it is just as important as automating your bills to avoid interest charges. Set it and forget! Before you know it, and after compounding has done its magic, you will look at your savings and all the investments statements and you will not only be happy you paid yourself first, you will be amazed at how magically the money grew. As Einstein remarked, compounding is the eighth wonder of the world. If Einstein can fetch for it, then you can surely trust it.

And if that is not enough, I will leave you with one last quote, from none other than our generation’s foremost financial genius, the one and only Warren Buffet: “Do not save what is left after spending; instead spend what is left after saving.”

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.

I am no slave to junk food. I may eat it once or twice a week, sometimes with the family. But despite it not being a daily habit, it still goes a long way towards causing damage to both my pocket and health, especially with the rising prices for food of late.

So for 2022, I have a new saving goal in mind, which will help improve two hugely important areas of my life: my pocket and my heart, both in an almost literal sense.

Junk to Health to Wealth

The idea is simple: on the days I know I would go out and eat junk (usually over the weekend) I will withhold those purchases and instead save that money. At first, I thought I would just keep the money and spend it on something else, since it was part of my ‘personal spending money’ anyway. But I thought it is more effective if I diverted this saved money to a new saving program or even into a piggy bank. Why? To be able to physically see the result of this diversion initiative. In other words, in 6 months or 1 year from now, I will not only be able to go on the scale and see a difference in my weight , I should also realize some nice financial savings from this junk food boycott or reduction.

Putting it in OKR terminology

If you are thinking this in terms of ‘Objectives and Key Results’ , it could read something like this:

Objective: (based on historical data of how often I ate at junk food places and how much I spend) : To save $500 a year and reduce my weight by 7 lbs for the year by reducing how often I frequent these places.

Key results:

• Visit max of once a week (from two)
• Spend a max of $7.50 a visit
• Skip at least once a month from the remaining regular visits.

If I eliminate my visits from 2 to 1 visit a week , this alone would result into savings of $375 per year, based on 50 weeks. If I can also eliminate one extra visit per month, that is another $90, putting me close to my goal of saving $500 from this ‘Junk to Health to Wealth‘ initiative.

While the numbers look clear and the advantages are numerous, this will not be without challenges and distractions. There will be those random days and weeks where you are out with the family and are too far from home or can’t wait , so you just do the easy thing and buy junk. That is fine. We should almost build those in and try to make up by skipping the next visit to eat junk.

Good luck if you decide to do this and let us in the comments below how it goes.

Finance books and literature love to use Starbucks and their expensive lattes (I admit, I don’t know what they cost and had to do some digging) as the perfect metaphor for money we habitually waste instead of saving it for something more useful in the future. And while it is not the end of the world to enjoy your favourite drink occasionally, especially on those cold snowy days where nothing else seems to do the trick to get you going, the steep price can quickly add up!

And while Starbucks and their lattes are used as metaphors for careless spending, we have others in this axis of personal waste. Netflix (and a whole host of other online apps like Instagram and Tiktok) , are starting to be blended into their own category: time wasters. AKA binge watching! A lot of you have been there: you watch Netflix or YouTube (me!) and before you know it, a whole hour (or half a day?) has passed by. And what do we have to show for it? Almost nothing in terms of productivity or return on personal development.

But here is a new one! What about Amazon (or your favourite online retailer) now being the ultimate space (and money of course) waster? With majority of our online shopping (proudly doesn’t apply to me other than buying books on Kindle that take no space) now taking place via Amazon, chances are a lot of homes and bedrooms are full of junk from Amazon. Ok, junk may be extreme as some of the stuff people buy on Amazon is useful (books, household essentials, new camera etc) but there is certainly lots of useless stuff that just sits there and doesn’t get used much, eventually becoming junk and taking up space. And this is even more prominent for Amazon Prime members (one of which happens to be a family member) . A friend of mine who also happens to be a Prime member, tells me that not a week goes by without one or more packages arriving from Amazon. And he has been a Prime member for years and years. Tell me his house is not full of Amazon junk by now?

As I said, I am proud to be the user of virtually none of this axis of money/time/space black-hole. Sure, there are the extreme odd times when I will use these sparingly or under special situations. Compare that to someone who uses all three:

($CAD pricing)

-Average of 3 Lattes per week (tall size) + 2 food item = $20 per week, or around $1040 or more a year

-Netflix: $17.99 a month = $216 annually

-Prime membership: $110 annually
Average of 1 purchase a week at $20 = $1040 annually

>>Total adds up to just under $2500! And that is not even counting money actually spent buying stuff on Amazon which is easily in the high hundreds, or thousands for a lot of people.

To some, this may be justified as it allows them access to three of their favourite things in life. But as we talked about earlier, these are more than just bad for your finance, but can be just as bad if not worse for robbing you of much needed time and space. And as we know, both are worth money. Time is money. And so is space, especially in our ever shrinking homes and condos.

There is time for everything. And while you can enjoy all the above, I feel like with these becoming a daily verb in our society and lexicon, some people are losing sight of how much they are wasting in terms of money, time and space to these big corporations.

It has been some time since I last wrote anything here and that is due to big changes that happened in my life recently : I am now a married man!

My wedding was in mid August and that was followed by an exciting and lovely honeymoon in Europe, which included 4 day stay in Rome and a Mediterranean cruise that took us through Italy, France and Spain!

Suffice it to say, the last two months have been very busy, hectic, exciting and fun.

My wedding and honeymoon taught me a lot of new things about the importance of saving and budgeting. Valuable lessons that will make me appreciate these two financial concepts even more, for the rest of my life. I will try to share some of these valuable lessons here while expanding on the rest in future blog entries.

Wedding Finances

As someone whose ethnic background are all about big weddings, I had to go with the flow and plan a relatively big wedding.  It cost me a fortune, but it was a great wedding and we had a blast. Although we didn’t go cheap, we still budgeted and saved and at the end we didn’t lose any money, which we are very thankful for.  I learnt that while planning a wedding, you tend to not care much about small expenses, since you are already paying big amounts for everything else.  But that shouldn’t be the case.  These small expenses can add up to thousands and they all take from your bottom-line.  And this being a wedding-a once-in-a-lifetime-event-you should enjoy the day as well as the people and not worry about how much money you will lose or even profit.  Worry about having a great time first and the rest will take care of itself.  At the end of the day, financing the wedding was a lot easier thanks to all my savings which I started some 2 years ago.  If you know you will get married eventually, why not start saving from now?

Honeymoon Finances

Thanks to my wife, our travel agent and lots of research, we were able to have a great and amazing honeymoon in Europe without having to worry about whether we can afford it or not. And here again, the key was our savings which we started 6 months before our honeymoon.  While on honeymoon, you are bound to run into things that you will want to buy and since it is your honeymoon, there is nothing wrong with spending money on these special items and moments.  But you have to know when to say no, otherwise you could quickly overspend your budget before you have even gone through half of your honeymoon.  Resist the temptation to just buy anything that comes your way, even if it is not available in your own country.  First, ask yourself if you really need that item? and if you do, is it worth it, given the price? and last, ask yourself if you can wait to find it cheaper somewhere else?

The best feeling is to enjoy your honeymoon and come back home with some money in your pocket, which you managed to save despite all the enjoyment and buying you did.  This money was spared thanks to our ability to stick to our budget and not wasting money on useless things.

I so enjoyed our Rome stay and European cruise that I would like to do it again soon. But for that to happen, we will need to start saving money from now. Well, at least we have one more good reason to save money and not spend it on useless things.