Budget Sense

While I don’t like talking down or preaching to people about finances from a position of ‘know it all’ , I do like to offer any advise I can when I realize the person is totally clueless or their situation is in need of some simple advise.

One of the advice I give out to people is to to simply save money and ensure you are paying yourself first. As simple and as obvious as this financial lesson may sound, it is lost on so many. The good news is, some of these same people are one advice away from turning their life away.

A friend of mine, whom we shall refer to as ‘Nick’ , was the recipient of such friendly but crucial advice. About two years ago or more, the topic of finance and money management came up and after knowing his situation, I gave him the simple advice and the importance of automating his savings. Moreover, I brought up the concept of paying yourself first. In his mid 40s at the time and while he had saved money in the past, it was sporadic and more of an afterthought. In other words, saving money was far from a priority for his pay check. I explained to him how not prioritizing this will ensure not a penny remains after he takes care of both essential and non-essential budget items. And I use the term ‘budget’ here loosely as he didn’t even have a real budget.

Fast forward to last week, where I had a chance to meet Nick for a mutual friend’s birthday. After telling me about his new job , the topic of finances came up and he proceeded to thank me for advice from years ago. Confused and clueless about this advice he had received from me, I asked him and he reminded me about the ‘pay yourself first’ recommendation I had given him years ago. Ever since, and after automating this through his payroll and bank, he has yet to skip a payment. I felt very proud of him and totally blown away by how one simple advice – coming casually and out of the blue – could make such a large impact. It is like the compound effect that starts small but builds up over time.

Seeing that he was committed and took my advise seriously, I offered him another advice that I myself had started to implement last few years. This is to forego any salary increases and let it continue to go to savings instead. It is money you never had to begin with, so just keep pretending that and let it go to savings instead. This was explained in a previous post but the concept is simple to understand and apply. Say your bi-weekly net payout is $1750 and from that, $250 goes to savings automatically. Let us assume you had a salary increase and your bi-weekly payment is now up to $1850. Take that extra $100 and add it to your existing $250 of automatic savings for total of $350. As long as you do this from the start, you won’t feel it and you just have a better financial future ahead of you.

Your life or someone’s life may just be one advise or lesson away from being completely different. When it comes to financial management and freedom, never shy away from advising others, or accepting advise from someone else, as obvious as the advise may be. While the advise may be the same, depending on the context and circumstances, there may be very valuable insight that can help. In this case, had me and my friend not talked about the strategy or prioritizing savings first, he may have wasted the last two years without any savings. And two years can make a world of difference.

One of my goals for 2022 is to get active with push-ups. To be more specific, I set to do 10 push-ups a day and increase that by 1 extra push-up per month. So for January, I started with 10 a day and I have since increased that to 11 a day for February. For March I will raise that to 12 a day and so on. The idea is to increase things while not shocking the system. I couldn’t just go from 10 push-ups a day in January to 20 in February. For those familiar with the ‘boiling frog syndrome’ , this should make sense.

You can apply the same ‘ladder’ approach to your finances, be it to save money or pay down debt.

Saving money

You can apply this in many different ways. You can start by saving a specific amount of your net pay and increase it by a specific amount or percentage each paycheque thereafter. Or, you can set it so that you are increasing it by 25% per quarter. So if you are starting with $100 saving bi-weekly in Jan, by April 1st, you increase that to $125, then $156 by July and so on. If this proves complicated , you can stick to the easier method of increasing it by a set amount. Alternatively, you can try out a more interesting method, where you increase your contributions based on the month. So starting in Jan with $100, you increase it to $120 in Feb (since Feb is the second month) and by the time you get to December, you will be saving $220.

Paying debt

Paying debt is similar to saving money, but instead of keeping it to yourself, you are paying it back to banks for borrowing their money. Here, too, it is key to set financial goals and fine-tune them as you go. Depending on your debt level, start off by dedicating a certain amount to pay off toward your balance and aim to increase that periodically. This could be done as aggressively as every paycheck , every quarter of however you want to set it. The key is to increase it periodically. Every increase will go a long way towards paying off your balance quicker, while saving on the interest.

Depending on what your financial goals are, start off by writing it down and being clear about what your current situation is and where you want to be. Next, set a timeline. And finally, decided how much you will set aside and how much to increase it by, and how often. It is magical what happens when you are specific, have a specific timeline, and add the power of compounding to it.

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.

In your budget, a ‘savings’ category is essential for emergencies or general savings. But what if you want to purchase something pricey, like a vacation or new furniture? Instead of dipping into savings, create a new category dedicated to the specific item. For instance, if planning an $800 Mexico vacation in August, make a category named “Mexico Vacation-August 2011.” This specificity helps your brain focus on the goal.

Now, where does the extra money come from?

Review your budget line by line. Assess which categories can afford some cuts for the “Mexico Vacation-August 2011” category. Start with the ‘Savings’ category. Temporarily reduce the contribution (e.g., from $125 to $100) until you’ve saved enough for the vacation. Continue saving your usual amount once the goal is met.

Explore other budget items. Can you allocate some funds from your personal spending or weekly ‘Grocery and Food’ category? Assuming 12 more pay periods till August, dedicating $60-75 per cycle could reach your $800 goal before August.

Bit of effort for significant savings

With creative budget reallocation and minor sacrifices, save for your Mexico vacation without disrupting your routine. Planning allows you to afford the vacation while maintaining other life activities and savings.

For more substantial items like a car, extend the timeline (ideally one year) and be prepared for more significant sacrifices, but nothing extreme.

In emergencies, dipping into savings may be necessary. If prepared, it becomes more manageable.