Let me start off by saying that I’m clearly not a financial expert, and this is most definitely not financial advice. I just want to explain how I spend my money, hoping it may help someone.
Before it gets to my Account
My journey starts with a portion of my pay being directed to my RRSP (a registered retirement account for Canadians), after which the Government takes their fair/unfair share (I’ll let you be the judge of that). Diverting a portion of my pay before it even hits my bank account gives me two advantages: my company matches my contribution up to a certain % (which is basically free money), and it reduces my taxable income.
Do some research to see if a retirement account is the right fit for you, but I believe that once the money hits your account, it’s much harder to take a portion out for investing. It requires a lot more willpower. Plus, if your company matches contributions, you should definitely take advantage of that.
Once it’s debited to my Account
Oooh, now this is the hard part and one I still struggle with. The next automation (more on this later) is a portion of my net pay being transferred into a Tax-Free Savings Account (TFSA), where I’ve set up recurring ETF purchases. This is something I recently implemented, and it’s been working well so far.
The amount I invest here is tied to my most recent pay raise. Instead of giving in to lifestyle inflation, we decided to invest the difference between the pre-raise and post-raise income automatically. This way we continue living within our means while still being smart with our money.
End of the Month
After all the investments (RRSP and TFSA) and taxes, I go about my month as usual. I’ve never been a big fan of strict budgeting because life happens, and I don’t want to limit myself if something comes up.
My wife and I just check in with each other on larger purchases. We usually take a few days to think about them before going ahead so we don’t give in to impulse buys. Of course, there are exceptions. Recently, we came across a great corner chair for our office for $99. It wasn’t something we planned to buy right away, but the deal was too good to pass up, so we went for it. That’s generally our mentality for the rest of the month, and I think we’ve gotten pretty good at it.
Monthly Review
On the last day of each month, my wife and I sit down and go through all our transactions. We add everything to a custom expense tracker I built. Feel free to reach out if you’d like the template.
It’s essentially our monthly pay (plus reimbursements/refunds) minus all expenses, categorized and compared to the previous month for context. This helps us see if we’ve saved money or spent more than we earned. It’s not perfect because there’s no hard stop if we overspend, but it works for us.
The tracker also helps with things like deciding if a new credit card is worth it based on our spending habits, and the month-over-month comparison shows us which categories increased.
Investment Vehicles
In case you’re curious (again, I’m not a financial advisor and this isn’t financial advice), I usually invest in ETFs. I never really had a clear plan until recently, but here’s my current allocation:
- 10% QQQ
- 40% XDIV
- 30% RSP
- 20% VEQT
I don’t even remember where I first saw this allocation, but it works for me and fits my risk tolerance. I also dabble in cryptocurrency, though I haven’t invested in that asset class in quite a while.
Automate It
I watch a lot of finance-related content on YouTube and have read a few books on the topic (most notably The Psychology of Money by Morgan Housel). The biggest recurring piece of advice is automation.
Automate your recurring bills, investments, and savings so you don’t get tempted or act on impulse. Try it out and see for yourself. You’ll be convinced of the power of automation.
What’s your finance Plan?
Reach out to me – I’d love to hear all about it.