Tag: Automatic Savings Plan

Budget? No, thank you.

I don’t use a budget. I’ve been in charge of my own money since I got my first part-time job, in a grocery store, at the age of 15. Not once since that time have I ever written out a budget in order to allocate a certain amount towards food, towards clothing, towards entertainment, towards X.

If you’ve been reading my blog for the past couple of years, you’ll know that I’m a huge fan of automatic transfers and sinking funds.

Very simply, my paycheque hits my bank account. My automatic transfers kick into high gear. Various amounts of money are dispersed among my many, many bank accounts. (Each account has a very specific purpose!) Then I spend whatever is left in my account.

For the cheap seats in the bank, I say again that I don’t use a budget.

If budgets work for you, then stop reading.

For my part, I’m not against budgets if they work for you. Everyone needs a good money-management system and budgets are one of the options available for controlling spending.

A budget simply doesn’t work for me.

See, if I’m at the grocery store and I see something that I want but which isn’t on my list, then I’m still going to buy it. I don’t want to walk past it solely because it’s not in the budget. (I might walk by it because I don’t need more calories/sodium in my diet, but that’s a different blog topic.) The same principle applies to clothing, shoes, gasoline, whatever isn’t already covered by my sinking funds.

And lest you think that money runs through my fingers like water, I promise you that there is a method to my budget-free madness.

The backbone of my money-management system lies in taking care of the Big, Important Priorities first. Once my priorities have been funded, then it doesn’t matter if I buy a couple of extra things at the grocery store or drive more than I’d intended in a given week. The most important elements of my financial life get funded first so that daily decisions don’t matter too, too much so long as I don’t go into debt. Rule number one of my system is always avoid debt!

Although I’m still fine-tuning it after all these years, the system I’ve developed for myself ensures that my medium-term and long-term priorities each get the lion’s share of my paycheque before I start doing my day-to-day spending. The impulse purchase of a pair of jeans while window-shopping at lunchtime is not going to derail my retirement dreams.

Automatic Transfers & Sinking Funds

The most important quivers in my money-management arsenal are automatic transfers and sinking funds. One of the most burdensome realities of adulting as a Single One is that all the expenses of my household are my responsibility. That means, I pay all the utilities and taxes and insurances. It also means that if I want to travel to Vancouver to enjoy the cherry blossoms in the spring, then I’m the one who has to scrounge up the money to do so.

In the pre-COVID19 days, I had a far more active social life that included concerts, travel, and meals with friends. Those activities have been curtailed for now, but I’m sure that I’ll get to enjoy most of them again.

My point is that I rely on automatic transfers and sinking funds to pay for the expenses of my life. For example, I pay my insurance premiums on a yearly basis. I have a sinking fund for that particular bill. I take the amount I paid last year, increase it by 10%, then divide that number by my annual number of paycheques. The final amount is then automatically sent to my sinking fund every time I get paid. When the premium due date rolls around, I’m not left wondering where to come up with several thousand dollars.

While I realize that some people pay their insurance monthly, I abhor the idea of anyone other than me withdrawing money form my account. I’d prefer not to grant access to my bank accounts to anyone else.

I have sinking funds for all of the following:

  • insurance premiums;
  • property taxes;
  • annual vacations;
  • birthday and celebration gifts;
  • Registered Retirement Savings Plan contributions;
  • Tax Free Savings Plan contributions;
  • renovations;
  • MISC.

Yes, I set aside a segment of my paycheque for miscellaneous stuff. I might decide to do something fun and unexpected, so I need to have a bit of money tucked aside for this unanticipated spending. Sometimes the MISC-money has to be spent on not-fun stuff, like a new pair of glasses – they’re quite necessary but they won’t be cheap.

Leftover money gets spent…

Yes, that’s right. Think of my automatic system as a blackjack dealer in a casino. My sinking funds are the players. The deck is my paycheque. Once the system has dealt money to each of my sinking funds, I’m free to spend whatever’s leftover however I want.

Again, I don’t use a budget. The leftover money is spent on groceries, clothes, gasoline, liquor, dining out, whatever I want. What I love best about my money-management system is that I can spend however I want in the very short-term because my medium-term and long-term goals are also being met. It’s the best of both worlds for me.

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Weekly Tip: Consider following the 50-30-20 rule for your money, which I first learned about in the book All Your Worth written by Elizabeth Warren and Amelia Warren Tyagi. In a nutshell, the rule says that 50% of your net income is spent on your necessities, otherwise known as MUST-HAVE’s. Then next 30% is spent on non-necessities, the Want-to-Have’s. The final 20% goes straight into Savings and Investing.

One of my Biggest Money Mistakes

Tempus fungit… which is Latin for time flies. And boy does it ever!

In 2006, I was fortunate enough to pay off my house. Unfortunately, I wasn’t smart enough to immediately turn my former mortgage payments into investment contributions. Instead, I didn’t start dollar-cost-averaging into the stock market until 2011. This was on one of my biggest money mistakes.

I missed the 2008 stock crash (Yay!!!) but I also missed 2 years of the recovery between 2009 and when I started investing in 2011 (Boo!!!!).

And what did I do with my money between 2006 and 2011? I seem to recall a trip to Hawaii in 2007. I’m sure I made some renovations to my home. I financed my vehicle and paid it off in six months. The rest of the money… I haven’t a clue where it went.

Coulda…Woulda…Shoulda….

Now that it’s 2020, I really regret that I didn’t start using dollar cost averaging the very second that I no longer owed money on my mortgage. If I had, then I would be 5 years closer to my retirement goals. Sure, I’ve got 9 years of consistent investing under my belt but I could have had 14 years of investing behind me. Why did I wait so long? Partly, it was because I listened to well-intentioned friends and family who told me to relax and enjoy my money.

The choice to listen was mine, and I accept full responsibility for it. At the time, I was younger and far less money-wise than I am now. However, I just wish that I’d found blogs like this one – or any of the other super-awesome blogs out there – earlier than 2011. Right now, I follow Personal Finance Club on Instagram. He encourages his followers to “Invest early and often”. You might want to check him out, follow him for a while, learn stuff that you might not already know… or not. The choice is yours.

I love PFC’s mantra and I wish I’d found this Instagram account in 2006. As it is, I started following PFC on Instagram in 2018. By then, I was already investing regularly but I still really like the graphics on his account. In any event, his advice is great. If I’d started in 2006, then I would have had 20 years of retirement savings under my belt by the time I hit my planned retirement date. As it currently stands, I’ll only have 15 years of savings in my kitty.

Unfortunately, I learned too late than procrastination is a time-waster. Even if you love your job, save and invest for financial independence. If your budget will allow, start working towards financial independence while you’re also paying down your debt. If that’s not possible, then start saving and investing your former debt payments once the debt is gone. There’s no need to duplicate my money mistakes! Do not use your former payments for day-to-day living. Instead, turn your former debt payments into investment contributions so that your money starts working hard for you as soon as possible.

Once I finally committed to investing for my dotage, I set up automatic transfers and began building my army of money soldiers. I’m happy that I’ve been able to consistently invest month-in, month-out since 2011. Yet, I still regret that I didn’t start in 2006 so that I’d be that much closer to financial independence.

Procrastination is to be avoided…

You don’t have to in any way adopt, imitate or copy one of my biggest money mistakes. Experience is a great teacher. You can just as easily learn from someone else’s experience as your own. Why not learn from mine? You need not make all the mistakes yourself.

Take a good look at what’s happening to so many people during the COVID-19 pandemic. Far too many people have lost their employment through no fault of their own. From what I’m reading in the media, precious few of those people have enough money tucked away to survive a job loss. They do not have the luxury of not worrying about how to pay for what they need. In short, they were not financially independent when the pandemic hit.

The best reason to consistently work towards financial independence is because you don’t know when you’ll want to stop – or when you’ll be forced to stop – working for a paycheque. If you love your job and can’t wait to spring out of bed to do it, then save for financial independence anyway. Being financially independent doesn’t mean that you’re obliged to quit doing what makes you happy.

Should the unthinkable happen and you stop loving your job, being financially independent also means that you have the option to stop doing what no longer brings you joy. You can quit to do something else without wondering how to put food in your belly.

And if you find yourself unceremoniously tossed out of your job, being financially independent means you won’t be in the position of wondering how to pay for the expenses of your life.

As stated by the Physician Philosopher, financial independence is the escape hatch. His article is about burnout among medical doctors, specifically, but the principle applies to any employment situation that you may want to leave. When you aren’t concerned about financial consequences, it is so very much easier to leave your employment whenever the mood strikes. Conversely, financial independence gives you the luxury of tending to your wounded pride, without any additional financial stress, should your employer unilaterally decide to send you on your way.

Please don’t be a procrastinator! Start working towards financial independence today.

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Weekly Tip: Pay the lowest management expense ratios (MERs) as possible while still meeting your investment goals. When two products are essentially the same yet priced differently, it makes no sense to pay more than necessary to acquire what you need. Use this calculator from the British Columbia Securities Commission to see the impact that MERs have over long periods of time. The lower your MER, the higher your final investment amount.

Experience is a Great Teacher

How are you doing today? I hope that you’re ignoring the gyrations of the stock market and going about your business of self-isolating, washing your hands, and self-distancing. They might not be the most exciting activities, but they will flatten the curve and help to avoid overburdening our hospitals.

As I approach my golden years, I’ve come to accept the maxim that experience is a great teacher. Additionally, I’ve also realized that I can learn from other people’s experience as well as my own. I need not make every single mistake myself. Watching others’ mistakes can be just as instructional.

Today, I’d like to share one of my investing mistakes so that you don’t have to make it yourself.

Back in 2008, the stock market tanked. I remember hearing about the demise of Bear Stearns, and I was shocked. I don’t recall why it was so upsetting since I wasn’t a hedge fund manager at the time, nor was I an economist or any other kind of expert. All I know was that Bear Stearns was a major investing bank and that it’s demise meant that something very bad was happening in the stock market.

So what did I do? I made the second worst mistake available to me. I stopped investing while the stock market plunged.

I’ve made no secret of the fact that I’m a buy-and-hold investor. My investment plan is simple. First, save money from each paycheque. Second, transfer those savings to my investment account. Third, buy units in my chosen exchange-traded funds. Fourth, rely on the dividend re-investment plan to invest the dividends. Fifth, go back to the first step.

I’ve designed the plan to take advantage of dollar-cost averaging. Each month, I invest in my ETFs regardless of the unit price. I completely avoid trying to time the market. “Is this a good time to buy?” is a question that I never ask myself. When I have the money, I buy into my ETF – easy peasy lemon squeasy. This method of investing is know as dollar-cost averaging. I first learned about it in The Wealthy Barber, a great book authored by David Chilton.

Back in 2008, I was not as smart as I am now. Twelve years ago, I freaked out and I STOPPED INVESTING!!!

This was a huge mistake! I should have continued to dollar-cost average into the market during the six months between the demise of Bear Sterns and the recovery which started in March of 2009. I would have been buying during the downturn.

Buying during the downturn is a fancy way of saying that I would have been buying when the stock market was on sale.

It’s good to buy things when they’re on sale. If you want a new pair of shoes, aren’t you happier making the purchase when they’re priced at 35% off? I have a feeling that if you had a choice of buying the identical pair of shoes for $100 or for $65, you’d opt to buy them for $65.

The stock market is no different. On February 22, 2020, the value of the stock market plunged. In other words, it went on sale. The Talking Heads of the media could barely keep from peeing their pants with glee! They had so much to talk about, so much fear to stoke in their viewers and readers. Buy this! Don’t buy that! It’ll be a V-shaped recovery! No recovery for 2 years! Avoid cucumbers!

Okay … maybe they didn’t say anything about cucumbers. But the rest of the statements aren’t too far from the truth.

Once again, experience is a great teacher. I’d already made the mistake of listening to the Talking Heads in 2008-2009. As a result, I did not take advantage of the cheaper prices on the stock market that were available at the time. As the recovery wore on, the stock prices didn’t fall but I did start contributing to my portfolio again. However, I could not overcome the error of not buying stocks when they were super-cheap. My failure to make the right choice 12 years ago means I’ll be working a little bit longer than I’d projected.

I see no sense in making the same mistake this time. So while I’m self-isolating, while I’m washing my hands, while I’m social distancing, I am also continuing to invest in my chosen ETFs. Yes, you read that right. I’m still investing even through this period of excess volatility.

Did the value of my portfolio plunge in February of 2020? You bet your sweet ass it did! And did the value continue to drop throughout March as the stock market roiled due to the COVID19? Again, that’s a big 10-4!

It’s been just 5 weeks since the plunge. My portfolio is recovering, just like the stock market is.

The Talking Heads won’t ever encourage others to follow my simple plan. Despite its effectiveness, my way of doing things is boring and boring isn’t good for ratings.

You see, the stock market is supposed to go up and down. It always has. It always will. Never in its history has the stock market only ever gone up, just like it has never only ever gone down. If you’re going to invest, then do so consistently and automatically. Do your research. Find a broad-based equity exchange-traded fund (or mutual fund if you insist on paying higher management expense ratios). Invest on a regular basis. Ignore the Talking Heads. They can’t tell the future any better than you can.

And in case you were wondering, the biggest mistake you can make right now is to sell your stock market portfolio. For the love all that you deem holy, do not sell! Right now, the prices are low and that’s why you should be buying them.

Like I’ve said, experience is a great teacher. You can learn from mine instead of making the mistakes yourself. Don’t stop investing right now. Stick to your investing schedule and build your portfolio while the stock market is on sale. The second biggest mistake you can make is to halt your investment contributions.

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Weekly Tip: Pay cash for your next car by making a monthly car payment to yourself for as long as possible before you head to the dealership. The payments to yourself will be the down payment, if you’re forced to finance your vehicle. Ideally, you’ll stay out of debt completely because your accumulated savings will be sufficient just pay for your next vehicle with cash.

It’s Okay to Keep Your Money

If you’re not already aware, then let me be the first to say the following: it’s okay to keep your money! You don’t have to spend all of it.

Now, you probably shouldn’t keep all of it either. After all, doing so means you won’t eat, nor have a roof over your heard or clothes on your back. Keeping every single penny of what you earn causes just as many problems as spending it all! A balance should be found as soon as possible.

Today’s post is based on my observation that there’s a goodly number of people out there who appear to operate on the belief that they simply must ensure that their expenses are equal to their income. I’m here to tell that such a belief is simply not true. It’s a formula guaranteed to keep you running in a hamster wheel for your whole life. Without keeping a little bit of your own money, you’ll never have the option of quitting whatever it is you’re paid to do now so that you can do whatever it is that you really want to do with your time.

You’re More than a Conduit

From what I’ve seen on a daily basis, there are many people who are little more than conduits between their paycheques and various retailers. These are people who work hard for their money, possibly at jobs they love and possibly not. They leave the comfort of their homes when they’d rather not. Nearly all are giving up time otherwise spent doing what they truly enjoy so that they can go to work and earn a paycheque. They’re foregoing sleep and health and time with friends & family all so that they can meet work obligations!

And then they turn around and spend every cent they’ve earned with barely a thought about the effort expended to earn it. I find this behaviour utterly baffling!

My comments are directed at those of you whose income don’t keep you on the absolute edge of solvency. I’m targeting those of you who can live well away from the edge yet you choose to put yourselves there. You work so hard for your money and you choose to spend it all.

Has no one told you that you don’t need to spend your money this way?

Again, it’s perfectly okay to keep your money.

Contrary to what the AdMan and the Creditor tell you every waking moment of your day, you’re not obligated to spend everything you earn. I will admit that the advertisements are enticing. Beautiful people are selling me everything from toothpaste to Tesla’s. Their sparkling white teeth and full heads of shiny hair inspire confidence that the products they’re hawking will complete my life. All I have to do is hand over my money and my life will be perfect.

It’s a seductive message.

Sadly, it’s also completely false! If we learned one thing from the Grinch by way of Dr. Seuss, it is this: happiness doesn’t come from the store!

Your Dreams Won’t Fund Themselves

So I say it again – it’s okay to keep your money! Put a portion of it away in an investment account so you can fund those years when your paycheque goes away. Create a few dream accounts! These are the accounts where you save up for those things that make your heart dance with joy. Maybe that’s a fancy cooking class. Perhaps it’s a trip to Greece. It might even be a fancy cooking class in Greece! You alone know what your truest desires are.

Yet, you won’t be able to fund those dreams and desires if you consistently spend every penny as fast as you can. The Hair & Teeth of Marketing aren’t going to help you achieve your goals. Their only objective is to persuade you to open your wallet. You have to believe me when I tell you that it’s okay to save your money for the things that you really want.

To be very clear, I’m not talking about people who have to devote their entire paycheques to rent and food. If you’re keeping it all together on a shoestring, then more power to you! The ones I’m talking about are those who have disposable income. They have some slack. If they had to take a pay-cut at work, they’d be able to stay in their current home and eat what they currently eat. Maybe they’d have to give up a few subscriptions, annual travel, and their plans to replace a 3-year old vehicle. Bottom line is that they would still have enough money to meet the survival expenses of food, shelter, and basic clothing.

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Weekly Tip: The 2019 RRSP contribution deadline is March 2, 2020. Make sure that you contribute something to your RRSP so that you have some cushion for your retirement years. Do not get trapped in analysis-paralysis. Make an RRSP contribution, preferably in an exchange-traded fund. Then leave the money alone for a long-time. While your RRSP-money is growing & compounding, your duty to Future You is to continue learning about investment options by reading books, blogs, magazines, websites, forums, stickies, and post-it’s. Learn as much as you can about this because it’s very, very important. Save-invest-learn-repeat.

Consistency is One of the Keys

This week, I listened to a story that blew my mind! It was a testament to the power of consistency in investing, through good times and bad. Diane was her name – a lady in her 60s who’d survived divorce from an alcoholic, while raising 4 kids, taking 8 years to get her electrical engineering degree, and starting her professional life at age 42. By the time she’d retired, Diane was worth $5,500,000…. and did I mention that she never earned more than $82,000 per year?

Check out episode 99 on Millionaires Unveiled to hear the rest of her story, a podcast that has recently caught my attention. They focus on interviewing millionaires and the stories are fascinating.

The Financial Independence Retire Early (FIRE) community loves to tell stories about people who figured out who to make a lot of money quickly in order to retire in their 30s and 40s. And to those who can do it, I say “More power to you!”

I would have loved to have retired in my 30s too, but that wasn’t the way that my cookie crumbled. I learned about the FIRE community in my 30s, though the regular channels – Mr. Money Mustache – and went from there. However, no one has been able to teach me how to turn back time so I’ll be retiring in my 50s.

What I loved about Diane’s story is that she had challenges in her life, including cash-flowing college for her children. I mentioned that she had 4 children, but did I tell you that there was a 16-year spread from the oldest to the youngest? Diane was paying for college for 16 years straight and she still wound up debt-free with over $5Million in her kitty.

How in the hell did she do it?

Consistency is the key. Throughout her podcast, Diane emphasized that she and her husband saved atleast 10% of their income throughout their working lives.

Single People, please don’t roll your eyes at this point. Kindly avoid the trap of believing that it’s-easier-if-you’re-married-because-there-are-two-incomes! Diane was very clear that she kept her money separate from her husband’s.

In other words, the money that she has not is solely Diane’s money. Being single is not an impediment to becoming wealthy. It’s possible to become a millionaire even if you don’t become a spouse.

Diane committed to saving 10% of her income from the time she started working in her 20s. At the time of the interview, she was in her 60s. That’s 40 years of investing in the stock market! Diane mentioned that she’s been told to allocate her funds into a 60%-equity & 40%-bond portfolio, but she prefers to keep 70% in equity and 30% in bonds.

That’s two lessons we can take from her story. She chose to save something every payday by living below her means and she invested her savings in the stock market. Time in the stock market helped her investments to grow.

The third lesson from Diane’s story is that you don’t need to make a six-figure income to do what she did. Diane never earned more than $82,000 while she was working. I’ll agree that she earned more than the median income for the average bear, but keep in mind that she was raising children on this income. It’s reasonable to assume that the costs of childrearing ate into whatever was left of her income after she’d set aside her savings.

Creating Wealth for her Family

Diane has also set an example for her children, one that they will hopefully pass down to her grandchildren. Through her actions, Dians has shown her children that consistency is one of the keys to building wealth and that saving money has to happen no matter what. If I understood her correctly, Diane already had children by the time she returned to school at age 34 to study electrical engineering. She worked full-time while studying, and she graduated at age 42. Throughout those 8 years, Diane continued to save and invest from every paycheque like clockwork. At the age of 50, Diane was divorced…and she was worth a cool million dollars. The rest of her money came from the compounding over the next 15 years!

Creating a multi-million dollar nest egg was the first step towards ensuring an intergenerational transfer of wealth within her family. If she chooses, Diane can pay for the post-secondary educations of her grandchildren. By alleviating this financial burden, Diane would effectively be helping two generations of her family. Her children could invest their money towards their financial security and her grandchildren could study and graduate without the burden of student loans. If they are wise, Diane’s children will then use their money to pay for the educations of Diane’s great-grandchildren when the time comes so that the grandchildren can build their wealth.

Do you see how beneficial this cycle of intergenerational wealth can be? Diane’s example of consistently saving and investing for decades is a gift to her children, if they choose to follow it.

Save. Invest. Learn. Repeat.

Just like the rest of us, Diane won’t live forever. It’s time for her to enjoy some of her money while the bulk of it continues to compound and grow. According to the podcast, she is using her money to fulfill her dreams of travelling with her family and creating lasting memories. Good for her!

If you haven’t already started to save and invest, then start today. Open a savings account – set up an automatic transfer so that you save something from each paycheque – invest in the stock market through a broad-based index fund or exchange-traded fund. Live below your means so that you have the money to invest. Save – invest – learn – repeat.

There’s nothing to suggest that Diane had the ability to spend all of her money on her own personal priorities for her whole working life… I’m looking at your Single People Without Children. If you’re a Singleton, then you’re the only person making decisions about where your money should go, which of your dreams to fund, how much you’re willing to invest so that you can create a retirement nest egg for yourself.

Ignore the talking heads in the media. They deliver nothing but a steady stream of hype-and-fear in order to drive ratings. “It’s time to buy! It’s time to sell! It’s time to buy! It’s time to sell!” They have no personal stake in whether you achieve your goals or not, so ignore them.

Saving a little bit of money at a time and investing that money in the stock market will lead to more than a million dollars after a few decades. While your money is working hard for you in the background, you go about the business of living.

Track your expenses!

You’ll always know where your money goes if you track your expenses.

As trite and obvious as that sounds, I’m always amazed by the number of people who don’t do this simple task.

Have you ever experienced getting a paycheque then wondering where all of your money has gone? If your answer is yes, then you might want to consider engaging in an old-fashioned activity called keeping track of your money.

There are so many ways to track your expenses. Pen & paper is very, very old-school but still highly effective. You can use an app, since nearly everyone has a smart phone. You can download a spreadsheet from any number of websites. If you’re the creative sort, you can even customize a spreadsheet tailored to your needs. This is my preference since I’ve yet to find an app that has all of the categories I need and want. I also like to play with the color scheme to highlight various pieces of information at a quick glance.

For the past three years, I’ve tracked every nickel of my money on a spreadsheet. I know how much I’ve spent on donations at work, cab fare, groceries, eating out, and a myriad of other spending categories. At the end of the year, I add it all up and figure out whether I’ve spent too much, too little, or just the right amount for the life I want to live.

As you know, I’m a huge fan of automatic savings plans. I have a number of automatic transfers in place to fund my long-term goals like retirement, as well as short-term goals like annual vacations. It’s also how I find the money to do renovations around my house. I think ASPs are the cat’s pyjamas! I encourage everyone I know to use them to fund their own goals and dreams. If you haven’t created one for yourself, I promise you that it’s as easy as falling down. Go ahead – give it a try – create atleast one today!

The Others will take your money

Want to know a secret? The same people who won’t set up an ASP to fund their dreams are the very same people who allow others to automatically transfer money out of their bank accounts every month. Withdrawals such as these aren’t as much fun since they represent money leaving the warmth of your bosom…to go and warm someone else’s!

Some of these withdrawals are necessary. If you have a mortgage, then the bank’s going want to get its money or the bank will eventually take your home away from you. And if you decide to get a car loan instead of buying in cash, then I can assure you that vehicle finance company will want access to your bank account so that they can grab their loan payment on the appointed day.

Gym membership? Subscriptions? Insurance dues? Bank fees? Cable? Internet? Membership in the beer-of-the-month-club? Each of these purveyors will happily withdraw money from your bank account each month with an automatic transfer that benefits them, not you. If it comes out of your bank account, then it’s s direct hit to your bottom line. Most often, these good people want to take their skim from your wallet indirectly, which means that they will charge your credit card. Should you not pay your credit card balance in full, then you’re paying interest to facilitate someone else’s automatic transfer of money out of your bank account. Ask me if this is a very good thing and I will tell you: NOPE!

When you allow someone else to withdraw money from your bank account every month, you’re less aware of where your money is going and when. And I’m convinced most people have no idea when monthly bills are charged to their credit card. By drib and by drab, someone other than you regularly drains your account because of decisions that you made years ago about products and services that you may no longer even use. This is an utterly ridiculous way to manage your money.

Track your expenses & avoid interest charges

Like I said before, some of you might be putting these same monthly expenditures on your credit card. Notice that I said “card” – there’s little if any need to have multiple monthly charges on more than one card. One card means one bill, which is to be paid in full each month as it comes due. You do pay your credit card off in full every month – right?

Some people carry credit card balances from month to month, year after year. They pay exorbitant interest rates for the privilege of doing so! If you’re in this group, then I strongly urge you to cut back on your automatic monthly payments. You’ll have to live a lean life to get out from under your credit card debt. That means you stop using credit and you start using cash. When you run out of cash, then you stop spending money until you get more. It’s a very, very old-fashioned way of living but it is guaranteed to prevent you from going into debt.

Prioritize what’s most important to you

When you track your expenses and you simultaneously commit to living on cash, prioritizing your money is mandatory. In other words, you have no choice but to rank what’s most important and apportion your funds accordingly. Is paying the mortgage more important than your Netflix subscription? Does a gym membership trump the cable bill? Can you keep your wine-of-the-week and still meet the car payment?

From what I’ve observed, there are only two ways to satisfy all of your spending desires. The first and definitely more destructive way is by accumulating debt via credit cards. The second way is to limit your desires such that they can all be met by the money that you bring home. This is called living within your means.

I would urge you to pick the second method since it causes far less stress. You retain the power to decide how best to spend your money on the items that matter most to you. Start tracking your expenses and only spend your money on the experiences and things that bring you joy.