Awesome quote from the Dalai Lama

One of my favorite quotes is this:

The Dalai Lama was asked what surprised him the most; he said,

“Man, because he sacrifices his health in order to make money. Then he sacrifices money to recuperate his health. And then he is so anxious about the future that he does not enjoy the present; the result being that he does not live in the present or the future; he lives as if he is never going to die, and then he dies having never really lived.”

Give your card a break

This may sound silly, but once a week I hide my credit card away for a full 24-hours. This simply means that I cannot spend anything on my card that day.

This does not stop me buy things that I really need as I can obviously get them the following day; but “silly” things that I would sometimes buy become irrelevant when I can’t buy them.

Give it a try and just don’t spend anything on your card for a full 24 hours. It’s best if you physically hide your card somewhere. It’s actually really easy to do and the rewards may seem small but in the long run every small bit adds up. Not only the physical money but also the mental observance of what is really important and what is not.

Pay yourself first

keyboardThis is one of those things that you’ve probably heard many times before and you know you should do it, but most likely you don’t. So let’s look at what is meant by paying yourself first, and how it will help you save.

To pay yourself first really means that once you have set up a monthly budget and worked out how much you can save each month, then you should transfer that amount into a savings pocket immediately after being paid. If your bank allows, you can set up a recurring payment to transfer the money each month.

We’re used to setting up payments for accounts and debt repayments, but we seldom take our savings “payment” seriously. You should think of this as another account that you have to pay.

The advantage of transferring the savings amount out to a Savings Pocket immediately is that you cannot be tempted to spend it. You can’t spend what you don’t have (well you can with a credit card but that is a discipline you need to solve for yourself)

Challenge

Work out how much you can save (either actual savings or extra payments towards debt) and set up an automatic payment now to transfer this money. If you’re not sure how to create a budget, read this blog.

Manage your credit card spending

Managing your credit card spend and keeping it within your monthly budget can be a bit tricky. The reason is that we budget for a calendar month, but our credit card statement generally happens at a random mid-month date. My credit card statement cycle is from the 8th of each month to the 8th of the next, but my payment must always be made by the 3rd. Now that’s just confusing!

It would make so much more sense if the statement cycle just ran over a normal month so that we could easily track our spending. But this way, the banks keep us confused and we just keep spending money never really being in control.

Let’s take a closer look at the issue and I’ll show you how to stay in control with just a very simple calculation. It will just take a few minutes of admin and a weekly checkup on your statement to make sure you know what’s happening.

Step 1:

Make sure that you can easily access your statement whenever you want. You can probably do this online, via an app or possibly even some texting service. However you do it, be sure that you’re set up as you will want to check your balance weekly.

Step 2:

  • Set a few reminders on your phone
  • 1st of every month – check your balance
  • Set up a monthly reminder to pay your card balance on the same date each month
  • Set reminders for the 7th, 14th, 21st and 28th to just check-up on your balance (it will soon become a natural habit to do this, but reminders will help in the beginning)

Step 3:

Create a spreadsheet similar to this. My calculations assume that I make a payment near the end of each month, so you must just take into account when you make a payment.

Manage CC
Zoom in if you can’t read the notes

You need to know what the starting balance on your account is. This is how much money you can spend. Then, enter the amount that you budgeted for your credit card spend.

The payment due amount will only be known later in the month, and the real final balance obviously only at the end of the month.

Because my monthly payment happens near the end of the month, my weekly check-points are simply the opening balance less a quarter of my budgeted spending. These figures are just rough estimates to what my account balance should be and if there is a major discrepancy I can always look at the transaction details.

The Predicted Month end balance is the Starting Balance less spending plus the payment made into the account.

All it takes to track your spending is a weekly check-up of your balance to see that you are on track.

Don’t let the banks mid-month statements confuse you, take charge of your money!

Budget by payment forms

As with your simple budget, there is no generic solution to understanding how you spend your money. We all have different spending habits and ways that we understand our money.

Something I find useful though is to know how much money is spent via automatic payments from my account, how much money I spend as Cash, and how much on my Credit Card. You of course may have multiple credit cards or store cards and if that’s the case it will be very difficult (if not impossible) to budget spending per card. If you have multiple cards then you really need to ask yourself whether you need them all, and if not, start cancelling them. One tip I can give with absolute confidence is that if you want to be in control of your money, you need to keep things simple!

Basic Budget 2

In this example I have simply indicated which categories are paid via Automated Electronic payment, by Cash & by my single Credit Card. In reality, your spending will never be exact, and unplanned things happen. That is fine, as long as you know what your plan is, and can identify where and why things have changed.

The advantage with categorizing spending by type is that you can actually draw the cash you need for the month upfront and you can also keep track of your credit card expenses as you know what is budgeted for your card. When doing this exercise though, have a look at the advantages of using cash and consider using cash for more of your spending.

This is just another way to understand what you are spending money on, and how. Take this concept and make it work for you with your specific circumstances.

As always, take charge of your money!

 

Create a simple budget

If you’ve never made a budget before then you should really start with something simple. Not that you ever really have to get too complex, but as you work with a budget over time you may find things that you want to change or situations that don’t work easily with your budget.

Before starting it would be good to know how much you’re currently spending. If you don’t have a clue then take the 30 Day Challenge of keeping track of each and every expense.

I like to use a spreadsheet for my budgeting as it makes the maths easy; you can however use any tool including a notepad and pen.

Start off with your income. You should hopefully know how much you earn each month, but if not, go find your salary slip. I would use my “net salary” (the money that is actually paid into my account) as my income as there is nothing I can do about taxes and other deductions off my salary. Of course, you may have access to a company store or canteen where purchases are automatically deducted off your salary – and these expenses you have full control over. So, use your full salary less taxes less compulsory expenses that you don’t control. (You can use your gross salary and show taxes on your budget, but that depends if you want that kind of detail)

If you have any other stable income (that you can rely on) then add it in as well. Examples would be over-time that you always work, rental income or a personal loan that someone is paying back.

With the Income section completed, now it’s time for the hard work. You need to categorize your spending into categories that make sense to you. Everyone has different spending habits and there is no “one fits all” solution. Categories could be things such as:

  • Satellite TV
  • School fees
  • Loans
  • Insurance
  • Groceries
  • Eating out
  • Entertainment
  • Fuel
  • Telephone
  • Club memberships
  • Golf
  • Other (for small things that don’t fit into a category of their own)
  • etc….

Although most expenses are monthly, some may be annual expenses (e.g. club membership) or possibly even quarterly expenses. The best way to handle these is to work out the monthly amount and budget per month and save the money in a specific savings pocket so that you don’t get a shock when you need to pay the money. It’s really easy to do once you’ve set up your “system” and reminders on your phone.

The most important aim of a budget is to ensure that you earn more than you spend! If you don’t, then you have to spend less. It’s that simple, but in practice it may take a few months to change your spending habits. You may want to consider cancelling store cards as these make spending far too easy!

Basic Budget

Now that you have decided how much you can spend in each category, you must stick to the budget! You will find that you cannot control expenses exactly as you plan as things happen and we react accordingly. However, if you overspend on the Groceries category then you need to underspend somewhere else to ensure that your overall expenses do not exceed the budget.

I also like to have a category for “Other” expenses which are often unplanned things that come up.

Once you have created your budget, see if you can find any extra cash or ways to save money.

Challenge

Create your budget now!

Do the right thing

Sounds easy enough, and it sure is! We’re strange creatures though as we generally know what is good for us in terms of health, exercise, financial issues, etc but we often choose to ignore our own knowledge. We think and say one thing, but do the opposite.

You may think that you need to exercise, and be frustrated that you don’t. But you still don’t. Or perhaps you know that you are not saving for your retirement, but you cannot motivate yourself to start. You can tell others about the benefits of budgeting, but you don’t do it yourself.

You know that you should save money, invest for your future, create financial goals, not buy things you don’t need, etc….  You know that you should keep track of spending and live within your means. You know that debt is bad.

Challenge

Write down one thing that you don’t do even though you know you should (because it is good for you). Now write the reasons why you don’t do it, and also write down the consequences of not doing it. Spend some time thinking about this…