Personal Finance

Creating money systems that work

“Everything must be made as simple as possible, but not simpler.” – Albert Einstein

When you think about it, there are a lot of aspects of our life that run based on systems. The time we get up each morning, the routine before we leave the house, our route to work or school, the shows we watch on TV or listen to on the radio. Each of these is part of a system we’ve created for ourselves and each of them depends on ingrained habits to ensure they run smoothly.

We get up each day at the right time because we set an alarm. We show up to our meetings on time because we put them into our calendars. We know how long it takes us to get from home to work because we take the same route at roughly the same time every day and so we know what time we should be leaving home in order to get to work on time. The knowledge and the habits that we build our systems on mean that we don’t have to think about the process itself which frees up more time to focus on other things.

Money systems

I’ve learned from my own money journey that not having money systems in place can create a lot of unnecessary financial stress when it comes to managing money and can lead to a lot of missed opportunities when it comes to building wealth. Over the past few weeks, I’ve facilitated a number of workplace education sessions centered around the key principles of wealth building and money management and conducted a lot of individual sessions with employees looking for help with their finances.

Related article: Habits of Wealthy Canadians

No matter what the employee’s age or circumstances, in almost every case, the action steps they needed to take to reach their goals could be systemized in order to increase their chances of success. It’s been said more than once on this site that managing money and creating wealth is simple (usually with the caveat that simply doesn’t necessarily mean easy). Systemizing the action steps needed to achieve your goals is a key ingredient in the recipe for success.

Related article: The key to implementing your financial goals

Systemize your cashflow

I remember when I first started working for my dad at 15, I would get my weekly wages in cash. The money would come in a small brown envelope accompanied by a handwritten record of the hours worked, wages paid and deductions are taken. Now, my salary is calculated by a payroll software program and deposited directly into my bank account twice a month. Technology such as online banking and internet transfers makes it extremely easy to keep track of spending and to set up automatic payments for bills and savings.

Related article: It’s important to track your spending

Systemizing my payments has made managing money a lot easier and saves me a lot of time. I use a basic spreadsheet I call the “paycheque tracker” to keep track of my monthly outgoings and because I get paid twice a month I list which bills will be paid by each paycheque and how much of each paycheque will go to savings. Every dollar has a purpose: my RRSP dollars come right off my paycheque, the dollars intended for savings automatically leave my bank account on payday and every bill gets paid on the closest payday regardless of its actual due date.

Related article: The power of Pay yourself first

This means that whatever is in my account the day after payday is meant for groceries and entertainment, I don’t have to worry about accidentally spending my hydro money on shoes! I have a slush fund and a contingency fund for unexpected expenses but neither of them is connected to my debit card so I can’t be tempted into splurging – sometimes the best systems are the ones that protect us from ourselves!

Systemize your investments

Investors tend to fall into two groups. At one end of the spectrum, there are active investors; those people who love managing, watching and researching investments. On the other end, there are passive investors; people who care about their investments but who aren’t really excited or interested enough to pay a lot of attention to their investment accounts. Passive investors are definitely in the majority, so if this is the category of investor you fall into, don’t feel bad… you are certainly not alone!!

A solid investment portfolio needs to be diversified and allocated according to the goals, risk tolerance and time horizon of the investor. For passive investors, there are target-date funds and asset allocation funds that are designed to take care of these needs and provide peace of mind for those who prefer a more “hands-off” approach to invest.

For the active investors who prefer to build their own portfolios, there are systems you can put in place that will automatically rebalance your portfolio at given intervals, helping you “buy low and sell high” no matter how the markets are performing.

Related article: Understanding the art of rebalancing your portfolio

For me, the money systems I’ve put in place, are intended to make sure I’m consistently paying myself first, building a buffer zone and staying on top of my bills. I’m very aware of how my own money psychology can trip me up if I’m not paying attention or get too busy and so I’ve tried to create systems that compensate for the areas where I’m likely to get off track. Even though each person’s goals, motivators, and circumstances are individual, we can each create money systems that help us stay on track and make getting to our goals a little easier.

What money systems do you use to help you reach your financial goals?

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