Tips

Cash management is a valuable opportunity to put your money to work for yourself, and your financial plan should always start with this as it addresses two major issues:

1. Finding the funds necessary to finance your plan, and
2. Ensuring that your cash is used properly to meet your goals

When your time is limited - managing money is harder than making it - so budgeting is essential. Below are a list of valuable tips and questions to help you manage your money better.

Are you accumulating wealth quickly or are you struggling day-to-day to cope with your expenses? The best indicator is your net worth.

There are three steps to create a budget:

1. Identify how your money is currently being spent.
   This requires analysis of your withdrawals from your checkbook, credit card statements over the last year and even ATM receipts.
2. Evaluate your spending.
   Create some guidelines for future spending.
3. Track ongoing spending.
   You may find that your guidelines are too strict or too loose and might need to be revised.

Here are two important steps to help reduce your spending:

1. Avoid impulse buying.
   Think before you reach for your wallet and your credit card. If you had to pay cash, would you still make this purchase?
2. Compare shops as a matter of habit.
   Differentiate between your needs and wants.

Need: A necessity, something required and essential for life. Example: Clothing, food, tools for work and medication.

Want: A desire, something wished for and non-essential. Example, a vacation; meals in restaurants, video games, gym memberships and designer shoes.

My needs and wants - Setting priorities

Difference between needs and wants is the first step.
The next step is setting priorities on your spending.

Setting spending priorities

To set your spending habits, you could refer to a simple 1-2-3 priority system:

1. Essential items
   (e.g. basic food, shelter, clothing)
2. Important items
   (e.g. transit pass, running shoes, cell phone)
3. Non-essential and not important items
   (e.g. candy bars, spa treatments, music downloads)

Tracking daily expenses

It’s easy to track your daily expenses once you get into the habit. Here’s how:

• Write your expenses down in a notebook.
• Record expenses on your smart phone.
• If you bank online, you can get electronic account statements that show your spending history, which might even arrange your spending into categories. Free online software is readily available to help sort this from your bank account.

Get more for your money

• Get a better communications package.
  You can often save by bundling your services for telephone, cell phone, internet and cable. Call your service provider to negotiate the best package.
• Get the best package of banking services, at the lowest cost.
  Contact your financial institution to see if you can get a lower-cost banking package or a lower profit rate credit card. Use compare4me.com to find lower-cost bank accounts and credit cards with the features you need.
• Pay bills on time to avoid late fees, lower profit rate and penalties.
  Check your bills to spot mistakes and overcharges.
• Check out the real costs of car ownership.
  These include: insurance, maintenance and weekly costs.
• Compare the cost of renting vs. buying a home.
• Consider forming a money support group with friends or family.
  In addition to getting discounts through group buying, you can help each other stay on track in reaching your financial goals.

There is no magical solution for everyone. Every person, every family, every household is different and if you want to reduce your spending, you’ll find ways to do it. If you can’t, there are credit counseling services available, which you can turn to for help.

The envelope system

Another method for managing your cash flow and your spending is the envelope system. The advantage of the envelope system is that the money is allocated in advance, so there are pre-set limits to how much you can spend in any one category, every month.

How to set up an envelope system?

• Look at the total income you have available each month.
• Withdraw your fixed monthly expenses: savings, debt payments, rent or mortgage, insurance, utilities, etc. Set this money aside before you allocate funds to the envelopes.
• With the remaining funds, estimate how much you will need for major expenses like food, transportation, household, clothing, etc.

  (It will be helpful if you have tracked your spending for the last few months).

• Label an envelope for each spending category.

  (An alternative is to use glass jars).

• Divide the monthly total for each category by four and place that amount in the envelope at the beginning of each week.
• Although the amounts in each category may be rough estimates at first, you can adjust them as you get more experience. You can also add envelopes for special projects and additional categories, as needed.

Keep your budgeting system alive

Whether you use a budget or envelopes, your budgeting system isn't a one-time exercise. To make it work, you need to review it regularly. Get into the habit of doing this weekly and once you are certain that it is accurate, review it monthly.

• Verify that your income and expenses figures are still realistic.
  If your actual spending is far from what you estimated, you may need to adjust your figures.
• Keep up with your savings and debt repayment commitments.
  Can you increase the amount you save or repay each month?
• If you are sliding into a deficit, take a look at where you can cut your spending.

Ways to avoid debt problems

It's easy to spend without realizing how the debt increases. Here are some good tips for avoiding this trap:

• Leave your credit cards at home.
• Decrease the credit limit on your credit cards.
• Set up automatic bill payments with your financial institution.
• Avoid impulse buying. Sleep on it and see if you still want the item the next day.
• Think over each expensive purchase for at least 24 hours. Acting on this principle, you will have more money for emergency savings.
• Avoid "buy now, pay later" offers.
• Keep track of your expenses and manage them with a household budget.
• Limit credit card purchases to those you can pay off in full at the end of the month.
• Go shopping with a list, and stick to it. Control your spending.