On Budgeting: Keep it Simple, Stupid

I had set budgets forever.  It’s super easy to write everything down and to put limits on where I’m going to spend my money in the future, and to see how much I will save.  But I’ve almost never been able to entirely do it, to actually put it into practice, in real life.  So what is it about budgets?  On all scales, organizational or individual, small or large, we

Now I’m at a point where my spending and budgeting goals are clear, which Apps like Mint make pretty easy these days.  I am trying to limit spending while still earning a good income and put as much as I can – up to $5,000 per month should be possible – towards debt (in order of descending interest rate until all is eliminated), investments (RRSPs*, index funds and ETFs, real estate, etc.) and finally charity and innovation.

I have build a simple life for myself in Mexico, so my current living expenses are even lower when it comes to food and other daily items.  But I had to find a way to actually track my spending in real time and to properly distribute the portions of the portion that I knew was available for ‘disposal’.  Most of my expenses are readily trackable, and the “Miscellaneous” (all regular expenses such as food and beverage, gas, and consumer purchases other than my regular monthly expenses such as phone bill, internet, etc.) part of my income that I know I can afford should be too, yet somehow I seem to keep breaking my planned budget and spending more than I should, thus putting less towards my debt and delaying my retirement.

I use a rewards credit card for virtually all purchases, and reap the benefit of a free flight every once in a while (I usually use these when I need to fly on a certain day when no ‘fairly’ priced flights are available), but this may be a big part of the problem.  It’s not practical nor do I want to be checking my credit card balance daily or more when I’m out living my life.

Oh, yes, I should take a moment to mention here, that is the whole point of this early retirement thing, you know.  To live our lives.  Not to be lazy, not to be glutinous, but to do healthy things that we love with the people we love when we want with financial and temporal freedom.  All things read from here on out should be read with that in mind, of course, as that is part of the redefinition of ‘rich’ that we will also begin to tackle soon (for example, ‘financial freedom’ doesn’t have to mean ‘unlimited cashflow’; it can also be achieved by consistently cutting spending in some very easy and practical ways).

Also, once I have retired and am spending much less, the benefits of rewards card will not outweigh the costs.  I plan to eliminate one of my rewards cards soon and once I have ‘retired’ I will change the other card to a no frills and no fees card or perhaps also eliminate it altogether.  In any case, using credit cards will no longer be a regular practice, except in cases where it is simply unavoidable such as shopping online or booking flights and hotel rooms.

So in the meantime, what I have decided to do, is to actually take the advice I have gathered from the people I look up to, and take a certain piece of my income (25% of my net income after the 6% deduction as an RRSP* contribution, 4% of which is matched by my employer – ya, FREE MONEY) that I KNOW, with a little mindfulness and discipline, I can use to live the life I want.

So I got to finding a way to use my bank accounts and known habits to ensure that this ‘disposable’ portion of my paycheque is made available to me and that the rest is put towards the chosen cause immediately and in a way that makes them virtually unaccessible.  And then that’s it, no exceptions, what I have is what I have and with another paycheque coming in just a few weeks after the last one, any other purchases will just have to wait.  This is going to be tough at first, but before long it will be a new habit and a snowball of cumulative effects will begin to take place that will increase my satisfaction and happiness, such as having 75% of my paycheque going straight to work by, first, saving me a ton of money in would-be interest payments and, eventually, earning me more money with returns on investments such as dividend payments so that I can retire and live my life on my terms.  The brain loves getting those little rewards too, so it really won’t be all that difficult to sustain this once it becomes your new challenge, your new little game.  After all, why not make this a central part of my life?  A primary goal?  If I’m successful, I will have earned myself decades of freedom.

It sounds simple, I know.  I am basically just giving myself an allowance and putting the rest away.  But if there’s one more thing I’ve ever learned in these 32.25 years (besides that if I can do it you can do it) it’s that the most powerful truths in this life are simple, but not necessarily easy.  And that’s what this blog is about really.  Doing the simple things, together, consistently, to build a better life for ourselves in the future.  Even if it’s not always easy.

*RRSPs are the Canadian equivalent of a 401K in the USA.  Savings for retirement.  They are not, however, equivalent.

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