We just celebrated Daniel’s 21st Birthday. We had to make do with a homemade cake, basic gifts (ordered on-line) and recycled candles. Dan’s a little bummed about how his painting business is (not) shaping up for the summer. Enter the Canada Emergency Response Benefit (CERB). $2,000/m is less than he would hope to make painting but his overheads are
mine low and he has done a remarkable job saving during these last two years of full-time work.
Those of us paying for mortgages, cars and groceries would have a tougher time stretching the $2,000/m. Let’s face it, our economy could be partially locked down for some time. In the meantime, businesses, like restaurants, barbers and the travel industry are teetering on the brink of collapse.
Those of us lucky enough to be busy working, still find ourselves with more time and less spending.
What better time to implement a budgeting system?
All that money not spent on travel, entertainment and just about everything else that can’t be bought on Amazon can be harnessed to weather this storm. Here’s how: Pay expenses using one of four bank accounts (that you can easily monitor on your smartphone – best to have them all at one financial institution). These accounts help you take control of your spending without turning you into a bookkeeper.
1. Basic Cash Flow
These expenses often make up the bulk of your spending and are somewhat inflexible. Expenses, like your mortgage payment, utility bills, car expenses and the like. These expenses are typically not emotional (except when you first acquire them). We encourage automating these payments.
All income should be deposited into a bank account for this purpose.
2. Variable Cash Flow
These expenses are more emotional in nature and typically variable. You can control them to some degree and they can quickly eat up spare cash flow if automated.
We often encourage managing this cash flow on a weekly basis, avoid use of credit cards and spend cash, where possible. These expenses include groceries, eating out, entertainment and hobbies. You can
set up an automated weekly transfer from your Basic Cash Flow account to this separate bank account.
3. Lumpy Cash Flow
This rather non-technical name refers to expenses that may be basic or variable but they aren’t spread evenly over the month or even the year, expenses like car maintenance, gifts and travel.
Total annual amounts can be reasonably estimated and converted to a monthly amount. This spending isn’t typically automated but doesn’t need as much management as variable spending. This bank account can be funded with an automatic transfer each month from your Basic Cash Flow account.
4. Specific
This final cash flow account is the payoff for managing the other three. Money that may have disappeared before can be reliably captured here – short term goals like that dream vacation, the kitchen renovation or RV purchase are all possible without wondering if you can afford it or ever pay it off! This account allows you to consciously trade off today’s Wants for tomorrow’s Dreams.
After all, if it’s financial peace you’re after, why let today’s spending get in your way?
Wondering how credit cards fit in? Contact me. I’ll explain. Oh, and stay
sane healthy.
