Our Financial Makeover Series
talks about personal finance basics and lets you figure out what applies best
to your own unique situation. In Part 1, we talked about avoiding fees and
their potential devastating financial pitfall. We also suggested to open a
no-fee chequing account to get out of the perpetual monthly banking fee rip-off.
Today, we’ll continue
to try to bring excitement to what many consider a tediously boring subject.
Like many, we used to consider
budgeting like a restrictive thing. Plainly put, expenses were bad, and income
was good. In practice, it mostly translated into trying to have less expenses. At
some point, it could also transform into working more to have more income. With
that perspective, budgeting was no fun at all.
It was like being on a
strict diet all the time. Spending would be like eating. Although some of it is
essential to your survival, too much of it is plainly bad. It can either get
you fat or poor. With that thinking, discretionary expenses like desserts and
treats can be devastating to your wellbeing. In the same fashion, exercise can
be compared to income. Regular doses of it can get you in better shape. In the
end, this only meant a lot of sacrifice.
Because I liked numbers,
I still found some pleasure in it. But to be frank and despite some success,
our penny-scratching restrictive budget was a torture that kind of got lost in
all the spreadsheets. No insane person would get excited about it. Nobody was
really interested to get involved in it either.
Fortunately, our way to
budget transformed over the years. It’s now more about pleasure. It’s much more
motivating knowing it allows us to get and do more of what we love. We finally
realized that, after basic expenses, we could do whatever we liked with the
rest of our hard-earned money.
So, to expose our
renewed point of view, this post will be about the pleasure of budgeting. We
hope you’ll discover how you could enjoy life more with clever budgeting.
Next time, we’ll talk
about when we were kind of halfway there with our previous approach that still
gave us significant power over our finances thru sensible budget choices.
An Efficient Tool to Boost Your Fun Level
One key to make budgets
attractive is to put some spice and fun into it. Wouldn’t it be great if your
budget allowed you to have more fun? The great news is that it truly can!
A budget can allow you
to be conscious about your spending. It can let you decide on what you going to
spend your hard-earned money. Just paying the bills at the end of every month
is not deciding. Take control of your finances by knowing where your money goes,
spending it on what you love and aggressively cutting what’s possible on
everything else.
This is a much better
alternative than what’s most people are doing right now! If they are doing
something. And, put this way, doesn’t keeping a budget feels much more
appealing and borderline sexy!
In that sense, your
budget could be used as a powerful tool to boost the level of fun and pleasure
in your life. Budgeting is a little work but remember our general objective is
always to obtain the best results possible with less effort as possible. Having
your priorities straight should already make things much easier.
We’ll talk even more
about it in our next financial makeover article but for now, let’s start to see
how budgeting can allow you to spend
more money on things you truly love.
Cover Necessities then Joyfully Spend What Remains
To get things going, your
budget should generally tell you how you spend your money. We are sure that
with a little time, you can gather up all data about your expenses. Credit card
and bank statements could be of great help.
The trick will be to
separate items and identify essential needs spending. For instance, we use
three levels to classify our expenses: essential, moderate and plain luxury.
Here, you could also assign a level of enjoyment to each expense. When you talk
about it with your family, you may be surprised on how some costly luxuries may
not be that enjoyable to them.
This should not stop
you but note that we’ll cover expenses later in a more detailed financial
makeover post.
The most important step
probably is to have a system in place to cover necessities or if you prefer,
basic expenses to cover your essential needs. For instance, this could easily
be done by transferring a pre-set amount from each paycheck to a basic expenses
account.
We recommend having a
buffer on top of your emergency fund for extraordinary expenses you can’t
easily predict. We prefer the term contingency fund and we’ll elaborate on it
on a subsequent post.
We’ve realized this
much later in our life but what’s most fantastic is that you can spend the rest
on whatever you like!
This approach is quite
simple and much more stimulating.
Getting more of what
you love can also greatly motivate you to aggressively cut down on spending
that only provides stuff you don’t really enjoy. In the process, the pleasure
of slashing senseless spending can provide you even satisfaction and joy!
Another way to free up
money for your fun budget is to tackle down your debt related expenses. For
instance, an efficient option could be to get a better rate on your mortgage.
Take that dull mortgage expense!
Ultimately, all of that
can allow you to relish more of what you truly love, guilt free. You won’t have
to deprive yourself enjoying more of life’s pleasures.
We don’t want to burst
your bubble but just remember a great part of retirement spending will be
essential. So, you still have to somewhat plan for it. Again, we’ll talk about
that later on.
Step 2 Homework
After
no-fee chequing account opened in step 1, do what’s necessary to set up at least one savings account.
Remember you
can manage to pay no fees. It could easily take you just a little time if you
decide to do it online. You are just a few types and clicks away from opening
multiple savings accounts and even linking them to your chequing account.
Think
about managing your accounts with a strategy that would look like this: with a
buffer, leave enough money in your chequing account to cover your basic
expenses. Automatically wire the rest in your savings account. Dream about what
you would like to do with that extra cash!
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