Budgeting for daily expensesSubmitted by Nick Parnell on June 25th, 2014
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Budgeting for daily expenses
We all know that money can be stressful; too little, just enough, too much (yes, too much; remember, mo' money, mo' problems can be and is a reality). At some point in almost everyone's life, money is going to be the underlying cause of stress. Creating a budget can help. Budgeting is a simple yet fundamental piece of financial security planning, and it always surprises me how few people have even looked at one, let alone filled one out.
For some, budgeting comes naturally, for others the mere thought of budgeting makes them cringe. Why is this? Budgeting, and further to that, financial security planning, is simply the relationship between life and money. Somewhere along the way this relationship has become dysfunctional for some and a first step in mending this relationship is taking a step back and looking at the bigger picture.
One way to accomplish this is to take some time to complete a monthly budget. This will give you a good, basic understanding of monthly cash flow: income in, expenses out. I find that when most people do this exercise, there is usually a surplus to which the typical response is to exclaim, "Where does that money go? I don't have that left over at month end!". Well, the reason for this is that unless money is earmarked for a specific purpose, it gets spent, even when people have every intention of saving the income above and beyond their expenses. This brings me to our topic - how do we budget for daily expenses?
Now, the first thing to recognize is that there is no "one size fits all" strategy, so I have listed a couple below:
1. Once you have completed your monthly budget and you have a rough idea of what your surplus is, break that into equal parts, one for each week of the month. Having done this, take that amount out in cash and use that as your "allowance" for that particular week. No debit, no credit, no cards at all. If you run out of money from your allowance, that's it - stop there and spend no more! It may take a couple weeks to get the hang of this, but once you have, it becomes habit.
2. Another trick is using an app or service like mint.com for instance, which tracks and records how much you spend and where; sometimes this awareness alone is enough to understand and/or curb daily expenses and spending habits. You can see which areas you are overspending, and cut back.
3. I find the very best way to get ahead in the savings game is to treat yourself like a bill and PAY YOURSELF FIRST. Have a portion of your paycheque go straight away into an account that makes it more difficult to access, such as a tax-free savings account if you require the money to be liquid and accessible at some point in the near future, or a registered retirement savings plan should you want this money to be ear-marked for long-term retirement savings. A good rule of thumb is 10 to 30 per cent of your gross income. You'll find that over time, not only will you not miss this extra cash, but it will go a long way to building your savings for the future. If this is the route you are ready to take (and I highly encourage every one to do so, even if it isn't much), consult your financial security advisor for advice on how much you should be putting away and where the best places are to put those dollars given your specific situation (i.e. based on your goals, time horizon, risk tolerance, tax bracket, etc.).
These are just a couple ideas and I invite you to comment on strategies you use or find helpful on my personal business Facebook Page:
Thanks for reading and I hope these tips will help make you more successful than you already are!