Personal Finance

Tracking expenses – the paycheque planner

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

If you’ve read my posts before, you might have picked up on the fact that I really don’t like the word, “budget”. There’s something about it that conjures up a sense of restriction and limitation in my brain that just doesn’t sit well. I think that’s a big part of the reason why creating (and sticking to) a budget was always so hard for me. A few years ago when I started getting really serious about taking control of my money and building something better for myself, I decided to approach my finances from a different perspective and, instead of creating a budget, I decided instead to focus on creating a money-management system.

Related article: Creating a money management system

In essence, the two are the same; a tool that helps me with tracking expenses and monitoring my cashflow but psychologically, the term “money management system” makes me feel in control and organized, which I find a lot more empowering and motivating than the constricted feeling that the term “budget” generates! It might sound silly but one thing I’ve come to realize over the past few years is that we often underestimate the role that our psychology and our subconscious play in creating (and preventing) change. Especially when it comes to money and finance! I know that some of the most significant changes I’ve made over the past few years are rooted in a shift in belief or a change of perspective that suddenly made it possible for me to make progress in an area that had always defeated me. As a result, now, whenever I’m trying to make a change, I always look for the psychological barriers first and I’m finding that conquering those makes it so much easier to reach my goals.

Related article: Psychology plays a big role when it comes to saving money

Overcoming my aversion to the idea of “budgeting” by framing it as a money management system was the first step in taking better control of my finances. Each month I wrote down what I needed to spend and what I needed to save and while the system definitely helped me plan out my spending I found that no matter how hard I tried to account for everything, the numbers never quite worked out as I expected them too. Sometimes there would be more money than I expected and sometimes there would be less. I made changes to my system, incorporating a “slush fund” for unexpected expenses and adjusting the amount I’d allocated to variable expenses such as groceries and eating out but still, the numbers didn’t quite jive. Then one day, during a client meeting, it suddenly became very obvious to me what the flaw in my system was. I was basing my system on monthly expenses but because I got paid twice a month and because most of my bills were due around the middle of the month I was finding myself with “extra” money on one paycheque and “short” of money on the other. I went back to my handy excel sheet and re-worked it to create what I now refer to as my “paycheque planner”.

Related article: A simple approach to track your spending

At the side of the planner, I listed my income and expenses as before but this time across the top instead of having one column for each month I allocated one column for each payday. This lets me see at a glance what has to be paid from each paycheque. My regular RRSP and TFSA savings are set up to automatically transfer out of my account each payday and I also pay all my bills on payday rather than waiting until the day they’re due. Thanks to the power of internet banking and mobile banking apps, I can take care of everything in less than 10 minutes. If I’m honest, I don’t really like paying anything early because I like my money to stay in my pocket as long as possible. However, paying bills right away makes sure I’m not late with payments and makes it much easier to keep my spontaneous spending in check.

Related article: A discipline spending plan

Any money that’s not needed for expenses in any given paycheque gets moved into my “slush fund” – a separate cash savings account that I use to cover unexpected expenses or top up my next paycheque. This means that any money left in my account on the day after payday is what I’ve allocated for groceries and entertainment. It also eliminates the risk that I’ll be distracted by my high bank balance and accidentally spend my hydro money on a great deal at the mall!

Download: Paycheque Planner Template

What has made this planner so effective for me is that it’s easy? I open up the spreadsheet twice a month, check all the bills off the list as I pay them, adjust any numbers that need to be adjusted, add any expenses that need to be added and then I don’t look at it again until the next payday. My whole year is planned out so I know when debts will be fully paid off or savings goals will be met and I can plan out how to re-purpose the money for other things. Most importantly, I have a clear picture of what flows in and out of my account each month which has definitely reduced my stress levels and made it easier to plan. If you want to try the paycheque planner for yourself, just click the link to download it.

If you have feedback or if you’ve found a system that works for you, I’d love to hear about it!

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