Budget Blues? Pay Yourself First

2018-03-20   minute read

Pamela Meger

Lifestyle Debt

If you were to make a list of things you enjoy doing in your free time, it's safe to assume budgeting likely wouldn't rank in your top 10. You're not alone. By some estimates, only a third of North American households carve out time each month to plan where their money is going.

Person looking at their computer

I get it. Budgeting can feel like a reminder of how much debt you're in and how far you are from achieving your financial goals. Not to mention, nobody likes feeling restricted. And rigidly planning and dictating where every penny needs to go can certainly (seem to) suck the fun and spontaneity out of life.  

But what if I told you the reverse is also true; that fun, spontaneity, stress reduction and an improved quality of life are precisely the reasons why budgeting is such a worthwhile exercise? Even better, what there's a way you can do it that requires less than five minutes of effort, just a few times each month?

Start with a Vision

Before we continue, I believe it's vital to get clear on the why of your budget. And I'm not just talking about being financially responsible and planning for emergencies. Of course, that's important and goes without saying. But I mean the real reason. What's the bigger picture or light at the end of the tunnel, so to speak?

I don't think a budget is necessarily about being ultra-restrictive, overly methodical or unduly conservative with your spending. It's simply about regaining control over your finances and being the boss of your money. It's about recognizing how hard you've worked and acknowledging you deserve to be fairly rewarded for your time and effort – however that looks to you.

When you have clear long-term financial goals, willpower becomes exponentially easier to find. It becomes easier to say no to several things now, so you can say yes to even better things down the road. That could be a vacation, retirement, your child's education or simply sleeping better at night knowing you're not struggling with debt and living from paycheque to paycheque.

So, ask yourself: what are the top five things you can't do, don't have or are struggling with now that more disposable income could help to change?

Pay Yourself First

Now, here's the good part. I most often find it's not the act of budgeting itself that intimidates or frustrates people. Rather, it's the process they use.

You may have been taught to meticulously go through every expense line by line and document where you every penny will go over the following month. In many cases this requires a level of foresight you just don't have. And it can cause anxiety when you need to borrow from one basket to cover an overage in another, and another and so on, until everything becomes a jumbled, out-of-control mess. It also requires a whole lot of time and effort just to track everything and keep your numbers straight.

Now, I'm not saying that process isn't valuable or that it doesn't work for many people. It is, and it does. But if you're someone who just can't stand the monotony and mental gymnastics of it all, I propose a different, significantly less time-consuming strategy. It's called the "Pay Yourself First" method. Here's how it works:

​1. ​Expenses – Go through your online banking and credit card statements to identify all your fixed and regular expenses. These are the bills you must pay each month to keep the wheels of your life in motion. They may include:

  • Rent / mortgage
  • Property tax
  • Utilities
  • Mobile phone(s)
  • Cable
  • Insurance
  • Car payment
  • Credit cards / lines of credit

2. Savings Goals – Next, using your answers to the question above, determine how much money you would like to set aside for your various savings goals. Here's an example of how this could look:

  • Emergency fund – $50.00
  • Retirement fund – $150.00
  • College fund – $25.00
  • Holiday fund – $25.00

​3. ​​Payday – When you get paid, your first step is to ensure all your fixed and regular expenses are covered. Immediately afterward, transfer the pre-determined savings amounts to the accounts you have set up for this purpose (RRSP, RESP, Tax Free Savings, etc.).

Once you've paid you bills and paid yourself, you're free to spend whatever is left over without the worry of keeping every receipt and logging each transaction in a spreadsheet. Yet, you still know you're still taking big strides toward achieving your financial goals.

The best part of this method is it can literally require zero effort manual effort if you don't want it to. You can set up monthly auto-withdrawals with most companies for your regular expenses. Most banks also offer the option to create automatic transfers to your savings account.

This will take some experimenting initially. But once you feel comfortable with the amounts you've chosen to save, you can put all the pieces in place and almost forget about it – save for making sure you're not going into overdraft or spending recklessly with your credit cards.   

Help is Available

If you're struggling to make ends meet and no type or amount of budgeting seems to make a difference, help is available. During a Free Confidential Consultation, a Licensed Insolvency Trustee will review your finances and offer options to help you get out of debt. Whether that means a Life Changing Debt Solution or any number of other available services – they'll help you make the best decision given your unique situation, and put you on the path to a financial fresh start.

Consultation icon