Habits drive a lot of what we do. Habits are subconscious and they form in weird ways. Did you know that a lot of our spending is driven by past decisions?
We all have this weird desire for coherence. We want things to be consistent. We judge current spending decisions based on past spending decisions. We want to keep things consistent so we make decisions based on what we did in the past (or what we’ve seen other people do).
We’d like to think we’re in control of our spending but that’s not really the case. We’re influenced by things we purchased in the past, or things friends have purchase, or co-workers, or even our family. We’re even influenced by random people we have no relationship with like the people in advertisements.
Arbitrary coherence is the idea that the first decision we make, or the first piece of information we receive regarding a decision, is arbitrary, we don’t have any reference point or anchor to evaluate this new piece of information so it’s very arbitrary. But after we get that initial piece of information we start to use it as a reference point, and subsequent decisions are made using it as a reference.
Interest rates are going up and that’s putting a squeeze on anyone with debt. Whether it’s a mortgage, student loans, or a line of credit, you’re about to feel the sting of higher rates. We’ve had unprecedentedly low rates for almost 10 years now and forecasters have repeatedly called for higher rates, and it seems that they’re finally right.
The Bank of Canada just increased their rate again making this the 4th increase in the last 12 months. That increase means we’re being charged an extra 1% interest on variable rate debt versus last year. It also means any we’ll be charged an extra 1% on any new fixed rate debt. On a $350,000 mortgage that’s an extra $3,500 per year in interest charges or about $300 per month!
Rising interest rates impact all kinds of financial products. Variable rate mortgages, new fixed rate mortgages, lines of credit, home equity lines of credit and of course, student loans too.
Not only are we paying more for our current debt but rising interest rates also make it more difficult to qualify for a new debt too. Higher rates will decrease the amount of money you’re qualified to borrow. A household earning 80,000 per year will see their home buying budget decrease by $28,000.
There are a few strategies you can use to immunize yourself from the impact of higher rates, at least for a short period of time. From a few months, to a few years, to a decade, these strategies can help you avoid the sting of rising rates.
Have you ever had a project that just seems to last forever? Or maybe a chore that seems to take all weekend?
You may have never heard of Parkinson’s Law but you’ve probably experienced it. Parkinson’s Law is when “work expands to fill the time available for its completion”.
Simply put, if you have 3 hours to complete a task then it’s probably going to take 3 hours. If you have 3 days to complete a task then it’s probably going to take 3 days. The work expands to fill the time you have available.
Parkinson’s law applies to finances too. Lifestyle inflation is a great example of this. You get a raise and your lifestyle expands to match it. You spending increases until you’ve used up all your raise. Not necessarily because you needed it, not even because you wanted it, but because it was available.
Another good example is lottery winners. Lottery winners expand their spending to match the amount of money they have available. Whether thats $1,000 or $100 million. Lottery winners are notoriously spendthrift and that might be due to Parkinson’s Law (among other factors).
Thankfully you can use Parkinson’s Law to your advantage and if you struggle with budgeting then this is one simple budgeting trick you have to try.
Do you want to track your spending but you don’t want to give Mint all your passwords or pay YNAB a monthly fee? Are you looking for a low-cost budgeting alternative that is still automated and easy to use? Then why not setup your own spend tracker using Google Forms and Google Sheets?
Creating your own spend tracker using Google Forms and Google Sheets is super easy to do. Google Forms integrates with Google Sheets so that every entry you make gets automatically added to your Google Sheet. As you spend money you simply pull up the Google Form on your phone, enter the amount and the category and hit submit. Google automatically adds this entry to your Google Sheet with a timestamp.
To help we’ve created a short video to guide you through the steps. In this video we’ll create a basic spend tracker, it’s nothing fancy but you can always add more functionality/charts later.
Budgeting for the unexpected. Planning for the unplanned. It seems like an oxymoron, but it’s an important budgeting tool that can help you stay on track financially.
Unexpected expenses can be a real pain in the @$$. You can go months with a perfectly balanced budget only to have it blown out of the water by some unexpected expense.
Sometimes it’s car related, like a car repair, new tires, or annual license plate renewal. Or sometimes it’s home related, like a leaky sink, a broken window, a leak in the roof. Or sometimes it’s around the holidays when the gifts receipts are piling up.
Whatever the reason, unexpected expenses can be a real buzz kill. But are they all unexpected? Or can we budget for some of these expenses in advance?
A solid budget should include some room for these unexpected expenses. We’re not talking about adding “buffer” to your budget. Budgeting for unexpected expenses should be strategic and planned.
Many unexpected expenses fall into three buckets, vehicle related, home related, and life related.
Tracking your spending is a foundational personal finance habit. It creates a solid base from which you can improve other parts of your personal finances. Without that strong based you’ll find that money always seems to disappear between the cracks. This makes it very hard to get ahead. Every month you’ll find yourself wondering where all the money goes.
Building a solid financial base of financial habits is the only way to improve your finances.
Tracking your spending isn’t sexy, but it’s super important. Like any tall building this is part of the foundation that sits below the surface, unloved and unappreciated, while the beautiful architecture above the surface gets all the attention and praise. The foundation is always there, carrying the weight of the building, keeping it from collapse.
Tracking your spending can be easy, and it can even be fun, you just need to find the right method for you.
Tracking your spending has a big impact. Once you know where your money goes you can decide if it aligns with your values and goals. When you start tracking your spending you’ll almost certainly find some waste. There is always some wasted spending that doesn’t align with your values and goals. But, it’s hard to see it until you see your spending summarized over a few weeks or months.
Tracking your spending lets you change your spending habits slowly over time. You can focus on one budget category for a few months and slowly see the impact of the changes your making. Without tracking your spending it’s hard to see if your efforts are having an impact.
In this post I’ll share six ways to track your spending. Try them out. Find the one that works for you.