Thursday, September 11, 2014

Money Management: My Favourite Methods That Actually Work

I am by no means a financial advisor, but I have always loved tracking my income and spending ever since earning my first Loonie ($1) for allowance when I was six years old. In the past few years I have been pretty good about creating and (somewhat) sticking to a budget, but it has been during the past year that I have really gotten into it and tried different methods until I found something that works great for me and my pretty simple financial life.

The two concepts that I have found to really work for me and that have actually stuck are Flex Money and Dynamic Budgets.

Flex Money – I don’t know about you, but I can sometimes find budgets pretty daunting. Calculating down to the dollar for a bunch of different categories just isn’t really necessary for my lifestyle. I have tried it out and every single time I end up dropping it sooner than the last time I tried. I find it disheartening to go a dollar or two over in one budget category, even if overall I’m still far below my budgeted amount. Enter Flex Money. You divide your income up into four different categories – Fixed costs (housing, fixed bills, Netflix, transportation/car loan, etc.), financial goals (paying down debt, emergency fund, retirement, other savings), non-monthly expenses (quarterly payments, gifts, donations, tuition – anything that you’re committed to paying, but not necessarily on a monthly basis), and flexible spending. Flexible spending encompasses all other spending: groceries, eating out, shopping, personal care items, entertainment, fuel, parking – whatever you typically (or not-so-typically) spend your money on. One of the most appealing things to me about flex spending is that you have a large dollar amount that covers all of these categories and it can be broken down however you want, or however it ends up being divided. So if you end up eating out more often one month and therefore do not have to purchase as many groceries, instead of being way over budget for restaurants and dining and under budget for groceries, you’re simply taking them from the same pool and only need to track your spending in relation to the one dollar amount you have allotted for flex spending. This also assists in being able to keep a figure in your mind while spending; I have found that when I have a bunch of different budgeted amounts, I’m more prone to forgetting the exact dollar value I assigned to a certain category. With flex spending, however, I can keep one dollar amount in my mind and it is way less likely to be forgotten between budget check-ins.

For more info about Flex Spending, I would recommend this article from the LearnVest Blog.

Dynamic Budgets – To me, there are two parts to a dynamic budget: 1. Every month does not have to be the same, and 2. It can change during the month.
Even though I am a fan of flex money, I still like to keep a budget to keep an eye on where my money is going. Instead of having a rigid budget set out at the beginning of the month, however, I like to create a budget based on the previous few months, but then alter it as the month progresses. I use to track my spending and link all of my accounts in one convenient place and it is there that I keep an eye on where my money is going. I still keep my flex spending number in my head while I’m out spending my money, but I check in at least once a week to see how I’m doing. Sometimes I have been a little too crazy with my debit card or unexpected expenses come up and I’m only halfway through the month, so I’ll take a look and see where I can move things around a bit. For example, if an unexpected gift or donation pops up then I can move some allotted funds from my flex spending (decreasing my number for the month) and up my non-monthly expenses so that I’m still on-budget in both categories. Less stress, but still in control of my finances. It’s great :)

In addition to these two concepts, some things that I like to do to keep my finances in order through the month are:
-  weekly (at minimum) budget check-ins (but sometimes I check it almost daily)
-  non-electronic tracking of my spending – I keep a little notebook in my purse to track my spending through cards and cheques to both help me have an accurate idea of where I’m at with my flex spending amount as well as have a record to check my online statements against. I don’t track cash spending because I budget for a certain amount of cash to be taken out each month and that’s my “fun money” that I can go for coffee with, buy treats, or that I can save up for a few months to buy a “want” from my wish list.
-  Automatic transfers for fixed costs (where possible)

Have you tried out either of these methods? Do you have other tips that you think would incorporate well? Please let me know! I’m always looking for new ways to tweak my financial tracking and goal-setting.

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