How to take control of your finances

Dare to share!

For me taking control of your finances means reviewing his expenses. It’s not just for alcohol that moderation tastes much better, it also applies to your spendings.

There are several categories of expenses and you should allocate a reasonable amount of money for each.

Having your finances in order does not mean having a fun-deprived life.

The intent is that you allocate enough money for all your spendings and for the future.

Yes, planning for the future since you might be the generator of income for you and your family but it doesn’t mean that you will always have the health or the wish to work.

So how you get there?

With budgeting.

Budgeting

This simple tool has a bad reputation and it shouldn’t. All companies use budgeting so that their operations go smoothly and be efficient.

If you don’t like hearing the sound of the word budget, change the name, call it a planner, a controller, whatever you want, but make one.

If it works for them why it would’nt work for you?

There are many methods of budgeting, and what works for one person doesn’t mean it works for another.

If you’re at your wit’s end, you’re living paycheck to paycheck, having overdraft fees, then you’re forced to take a more drastic approach to get back on track with your finances.

1. Get your numbers:

   Before you start reallocating your money to each category you need to know how much your speeding for each category.

   To do that I suggest you get a monthly statement of your chequing account or credit card, whatever account you’re using for making your expenses.

   This will tell you exactly how much your spending on everything. It will be an illuminating experience.

   As for your income, I expect you to know what’s coming in, if not you can check your payslip.

2. Allocating your revenue

   Now that you know how much your spending on each stuff you can start making the adjustment.

   Depending on your personality I suggest, one of these two options:

   Envelope system: 

   This is an old budgeting system that your grandparents probably used. The advantage of this method is that it is concrete, you see your envelope gets emptied out each time you spend.

   The method goes like this, you take an envelope for each category of expenses you have and you put in it the amount of money you have decided to allocate for that category.

   Every time, you need to pay for something related to that category you pay it with the money inside that envelope. 

   Once the envelope is empty, you stop spending in this category. Be careful not to cheat by withdrawing money from another envelope to replenish the empty envelope.

   Obviously, in our era, it’s not possible to pay everything with cash since most of our expenses are withdrawn directly from our account, but there are still variable costs that can be paid in cash.

   Here are some categories:

   – Car (Gaz, maintenance, tire)
   – Groceries
   – Retirement
   – Emergency Fund
   – Restaurant
   – Clothes
   – Leisure (Shows, cinema, hobbies, etc…)
   – Personal care
   – Booze

    

   For me, it’s a transitory budgeting system, it’s to get you rolling, but if you end up loving it you can always keep it.

   It helps you get good speeding habits.

   Percentage system:

   This is the method I am using. To put this system into work you have to decide the percentages you want to allocate to categories and you stick it. 

   However, the categories are broader. In my case, I separate all my income into 3 categories, fixed expenses, debts (excluding mortgage), and savings.

   Depending on how bad your situation is, the percentages might different but you should at least put 10% into savings.

   This follows the principle of paying myself first after I go on to the other expenses, which may be 30% for debts and 60% for all your bills.

   As you will progress in life, you might increase the account allocating to savings if you advocate the idea of reaching financial independence as quickly as possible or you might advocate the moto YOLO, so you might decide to allocate more for travel for example.

   Whatever you decide,  do not decrease the percentage amount you pay yourself, keep it at least 10%.

3. Autopilot

   Now, everything that goes into your bank account goes out with a purpose. If you disciplined and in control of yourself. The percentage system may be easy to implement for you.

   But as I said at the beginning, we are not all made the same. You might need a defibrillator shock to get you started, in this case, the envelope system will do that.

Final note

To finish, budgeting makes you realize where your overspending, and once your spending has been adjusted this tool helps you keep the good habit in order to achieve your goals.

You are the only person who can tell if your spending in a category is reasonable or not. Priorities are different from one person to another.

Be honest to yourself and make the adjustments.

Also, you need to keep debts and savings a priority, if you end up with extra money at the end of the month, you need to put it in the debt or savings category.

This is also valid if less money has come your way. It’s not the money allocated for debts or savings that should be lowered but rather the money allocated for the other categories.