Ever wondered how financial experts run their own personal finances? As many of you know, I work in finance in my day job. I never talk about financial products or specific recommendations in social media. But over the years in my career, I have picked up some excellent general tips and whipped my own finances into great shape. A lot of people ask me for tips all the time so I thought I’d share with you how I run my own personal finances so that I’m always making progress toward my goals.
I keep an emergency fund at all times. It’s not JUST for emergencies, I’ll also use it for opportunities or larger purchases that are planned, such as a vacation or a down payment on a car. I keep this savings fund separate from my chequing account.
I pay myself first. I have a budget that I stick to each month*. When I initially created my budget, I included my savings contributions as fixed expenses. My savings amounts are non-negotiable – NOT what’s left over after I’ve created the rest of my budget. The rest of my budget has to fit around my savings commitment to myself.
I use my no-annual-fee credit card for nearly all purchases throughout the month. I pay it off in full every payday (which, for me, is every 2 weeks) so I never pay any interest on purchases. And I rack up points on my card for all the purchases that I have to make! I’ve redeemed points for a free plane ticket to see my guy in Ontario, and I still have more points left for another trip!
I set up all fixed expenses (where possible) on pre-authorized payment plans. That way they’ll never go unpaid due to forgetfulness.
I keep a finance calendar. Listen up, because this is my BEST SECRET. I use Outlook, but any calendaring system like Google Calendar would work just as well. I put in everything that happens in a recurring manner as a colour-coded recurring appointment in my calendar. Payday is a green recurring task. And every single item that will be drawn directly out of my bank account on a particular day gets a red recurring task with the amount indicated. This means I can always see at a glance what a month of income and expenses looks like.
I always keep a buffer amount in my bank account. Never let your planned expenses and withdrawals take your main bank account balance below this buffer amount. This leaves room in your account for unplanned or forgotten withdrawals without running the risk of a payment bouncing.
Payday is my favourite day of the month — and not for the reason you’d think. It’s not for all the fresh new cash to spend! Nope – it’s because payday is the day I get to figure out just how far forward I can nudge my net worth on that day. As long as it’s always improving, it gives me such a thrill! My plan is to figure out all the transactions that will occur on my chequing account between this day and next payday. Here’s how I do it:
- I log into my online banking and pull up my current bank and credit card balances.
- I pull up my finance calendar.
- On a scrap of paper, I write down my current exact bank balance (once the paycheque has been deposited).
- From there, I subtract all expenses and savings contributions that will be withdrawn from my bank account before my next payday. I also subtract my bank account buffer amount, and I’m left with the minimum amount that MUST be left in my bank account.
- From that amount, I subtract the total amount I need to pay off my current Visa balance (and I damn well better have enough to pay it. If I don’t, then I’ve been spending irresponsibly and it’s time to tighten the budget immediately).
- I transfer the balance to pay off the Visa by doing an online payment.
- What’s left, after accounting for my buffer and expenses, is the amount I have to play with. Depending on my priorities at the time, I may use this amount to pay down my line of credit (if needed), or as a lump sum boost to my retirement savings or emergency fund, or sometimes I might spend it on something special!
Using this method, I have not missed a deadline or had a single bill payment bounce in over 9 years, I have really great credit, and my net worth is edging upwards with every pay period. And I do it all over again each pay day. It takes a little bit of work initially to set up your budget, finance calendar and pre-authorized savings and bill payments (but isn’t your future self worth it?!), but once they’re done, they go on autopilot. The calculations for bill payments takes me about 5-10 minutes each payday. I now love the little fist-pump feeling I get each time I find out how much I can use to pay down debt faster or boost my savings, so I love doing this exercise!
If you need help creating a budget, read this post on how to create a budget for the first time, and then join Words of Williams’ newsletter for a free budget template download. Mint or Mint Canada are also a great help for the lazy budgeter :)
Any questions that I might have missed that you’re curious about?