It’s not unusual for us to to want to spend our money when we are flushed with extra cash. Everyday we are bombarded with advertisements on television, Facebook and our mobile phone games. We live in a consumerist society. There’s no wonder why Canadians are so much in debt and many homeowners fund their lifestyles using HELOCs.
When we were younger, we always tend to set goals for ourselves. “I want to be a doctor!”, “I want to save for my new bike!”. As we get older, we tend to take things for granted because we’re used to getting what we want. “I work hard damn it. I deserve it!” Since we set less goals for ourselves and we fall into a robot like state of work and play, we end up forgetting to plan and budget accordingly.
In today’s society, FOMO or YOLO dominate. We really don’t account for the consequences of our purchases and what it might mean for our future. That’s why it’s important to look at your personal budget on a regular basis and adjust for unforeseen expenses that might be coming up. Set goals for yourself so that you can reward yourself for saving.
Things that you plan to do or want to do should be budgeted for. Ensure that you have enough savings to do the things that you plan to do before you do them. If there is a trip that you want to take then make sure you have the required savings. If you have an expensive purchase that you want to make, make sure you save for that first before putting it on your credit card.
Too many people make their purchases using credit cards first and then worry about paying it off afterwards. Remember that if you don’t have the cash on hand right now to pay for it, that means you shouldn’t be buying it. It’s as simple as that. Stop trying to play catch up on your finances because you will never win.
The things you can put into immediate plans are:
- Rent or mortgage
- Utilities and cell phone bills
Savings for immediate plans should be kept in cash and be readily available.
Short Term Plans
You might be thinking, I’m already saving for my trip this year. Isn’t that a short term plan? Those are you intermediate goals. Short term goals are financial objectives that you might have 1-5 years out. This may seem like a long time away, but that’s the point. These are expenses that have to be thought about when budgeting.
Many of the short term expenses that we have are normal replacement objects that we should really be budgeting for, but rarely do. This includes car replacement costs and home maintenance costs. One can also lump in potential costs for professional licensing fees for your career or exams that need to be completed.
Short term plans are the most ignored forms of expenses. They usually end up falling onto the emergency fund because these things are not saved for. Take the time to sit down and think about all the things you might have to pay for in the next 5 years.
Things you might end up thinking of for short term goals are:
- Car repairs or replacement
- Home appliance replacmeent
- Home repairs or renovations
- Large vacations
When saving for short term goals. Avoid putting your money into equities and bonds. That is too volatile to ensure that you will have the money available when it comes time to pay for your expenses. It’s best to stick to GICs or high interest savings if you know you need the money in less than 5 years. The worst thing that can happen is a stock market crash that wipes out money you need in the short term.
Long Term Plans
Long term plans are things that may be 10 or more years away. This is much harder to plan for, but at the same time there is much more room for error when trying to save for it. Things that are long term financial commitments include your retirement or perhaps a newborn’s future education.
Things you might plan for long term include:
- A young child’s education
Since the time frame of these financial goals are so far away, it doesn’t mean that we shouldn’t be thinking about them. In fact because they are so far away, it means we can employ a balanced investment portfolio to meet these goals.
It’s for that reason that it makes perfect sense to invest in a balanced investment portfolio for a young child’s RESP and for your own future retirement using an RRSP or TFSA when it is greater than 10 years away.
While it might seem like a real chore, it really shouldn’t be that hard to sit down and review your budget on a regular. Make sure to do it often enough so that the money you are saving is working for you in the right ways.
A sample budget of what you might be saving for might look like something below:
The above is a sample of what a budget might look like for someone that is making a gross income of $56,000 in the province on Ontario.
This can take maybe only 15 minutes if you know your own expenses to maybe a couple of hours if you really have to look through your bills. Properly planning and budgeting can make you feel much more comfortable about your finances and your ability to reach financial independence.