Personal Finance Simplified -Ep.26

Personal Finance Simplified - Ep.26

[00:00:16] Intro

Hey guys. Welcome to Growth on the Daily, the personal development podcast for athletes. This is a podcast that helps athletes overcome the challenges we face on the daily. My name is Rey, and I'm your host. I'm a former competitive hockey player, passionate about self-growth, and I'm here to support you on your journey to becoming the best version of you.

Thank you guys so much for tuning in to today's episode. I'm so excited to talk to you guys all about personal finances and managing your money. But before we dive into today's episode, I would really appreciate it if you guys could head over to Apple Podcast. Leave us a five star review and rating. Let us know how you find the show. That's a great way for us to grow the Growth on the Daily community and get eyes on the podcast to those who have not heard of the show yet. Alright guys, let's head into today's episode.

[00:01:09] What is personal finance

Let's talk about personal finance. So personal finance is a term that is everywhere, and what it means is managing your money. It's all about understanding where your money's coming from, how much you have, where it's going, where it's being put to use, how it's being put to use, and how that system all works together. In this episode, my goal is to help you guys develop a plan to manage your personal finances in a very simple way with minimalistic work, but it'll get you the best bang for your buck.

I am very much interested in personal finance. I read a ton of blogs, listen to podcasts. I read a lot of books on personal finances and managing money just because I'm really interested in building wealth and you know, also, minimizing taxes and investing and whether that's in real estate, in the stock market, understanding how your paycheck works, how benefits works, how credit cards work, all of that I'm very interested in.

[00:02:13] A new way to budget

So I have spent a lot of my free time looking into those resources, and I have a new system in place that I really wanted to share with you guys. The first aspect is this new way to budget, and I don't really think about it as budgeting. Not that there's anything wrong with budgeting, I just think there's a traditional way of budgeting, and that way is not this.

So I like to call it a new way to budget. Really all it is, it's building a plan for your money. The premise behind this is every dollar has a job. What it means is when you get paid, money is going to be allocated in different areas. It's going to be allocated to the money you spend, to your bills, to any payments you have, to anybody you owe, and any debt you have as well as to savings and investments.

And the point of that is that after you've allocated all of those dollars, no matter how much it is, you will have no money left over, but you've put your money in every place it needs to be. So how we go about this and why I say it's not really the traditional way to budget, is it's the idea of spending on what you love without sacrificing for your future.

So it's how do you contribute and prepare for the future, but also enjoying your life today without those insane sacrifices of not being able to go out with your friends or enjoy everyday life experiences. There's a way you can do both. You just have to have a system in place. So why would you do this?

Why? What's the benefit of this new budgeting system that I have this new spending plan system that I have in place? I've done it for a few reasons, but I would say that there have been three key benefits for myself, and hopefully you will find the same if you choose to implement this process.

[00:03:55] Benefits to a spending plan

The first is easing stress and anxiety of finances. I am someone who always thinks about money. I definitely still put my money towards the things that I love to do and want to do, but in the back of my head, I'm thinking about how this affects everything else. How this is going to affect, oh, my allocation for this, how this is going to affect my bill payment for this, who I owe money to, who owes me money, all that kind of stuff. And it's annoying and it's stressful and it's complicated and I've wanted to ease that. And I've definitely found that the system has, began to do that.

Another thing that has it has allowed me to do is actually understand where my money goes. I often found myself in the past of, you know, getting paid and I'm like, okay, cool. Like I have X amount of dollars, and then at the end of the month I'm like, where did this go? Like, what did I spend on? I don't really feel like I went out a lot, so I'm not really sure where this money went. All of that. And it, there's a lot of anxiety too, because you're, realizing that you're living paycheck to paycheck, where most of us really are, especially when you're in undergrad, fresh out of undergrad, you know, you don't really have a lot of money. So it's really important to know where that money goes.

And then the final sort of benefit of this plan that I found is that it has allowed me to, like I said, live in the present, but also prepare for the future. So I'm not anxious about, oh my God, you know, got to worry about the retirement, worry about future payments I'm going to have, and that means I can't travel and that means I can't go out with my friends. But none of that is the case because I've allocated for it. I have planned for it, and I'm able to enjoy my life, not necessarily stress free because I still think I have natural anxiety when it comes to managing my life, but definitely has relieved it so much so that I don't just think about money constantly, which is great.

[00:05:40] Where do you spend your money?

Okay, so let's talk about the spending plan. What are the components of the spending plan? The first thing is defining this budget. I like to just call it my spending plan, and how I set this up is I broke down one, my bills. What are my fixed bills that I have every single month or every single year, whatever that cadence looks like.

So, for example, for me, I have a phone bill that I pay every single month. I have subscriptions that I pay for, for this podcast to run. So those are my fixed costs. And then you have other sort of variable costs that you always pay, but you might not pay the same amount every month. So things like, you know, gas, maybe clothing and shopping, and you know, eating out.

You might have like transit fees, car payments, whatever that looks like. Allocate all of that. And how are you going to do that? You could either write it out on a piece of paper and just say the amount of money you pay, the date it's due, if it's a bill, how will you actually pay it.

Like, are you paying this via credit card chequing account? E-transfer, like what is that looking like? Where's the money going? And from where? And laying that all out on a paper or on a spreadsheet. I am a consultant, so you know, I live in a spreadsheet, so for that reason I like to lay things out on a spreadsheet.

Not too complicated. It will probably take you a couple hours because you'll probably have to go back to your previous like credit card statements and add things up, like take a couple months in the past, look at how much you actually spent eating out, how much you actually spent on transit, on Uber, on Uber Eats, and it actually doesn't matter.

I don't want you to be judgmental here. The point isn't to make any changes. It's just to allocate the amount of money that you know allows you to fund this lifestyle that is it.

[00:07:20] 2. Set up your high-interest savings accounts

Once you've broken that down, you then have to make sure you have savings accounts in place. High interest savings accounts. High interest savings accounts are needed for few reasons. One, they allow you to put money away for emergencies. That's why we have an emergency fund, two, for short term and three, for medium term savings.

And those are different savings funds that for certain reasons you would take out of that fund. An emergency fund is for emergencies, meaning you lost your job, your car broke down, someone's in the hospital, something like that. Emergency. That's when you take that money out of that fund. There's no other time where you take it out.

Your short-term savings might be things like maybe over the course of the year you save your Christmas gifts, or you save for a vacation. And when it's time to pay for those things, you would take out of that fund.

Your medium term fund. Maybe you're saving for a car, you're saving for a house, those kind of things. Maybe grad school education, and at those times you would take from those funds. Now you want to establish high interest savings accounts because they have the highest interest rate, and what that means is they give you the largest return on your money.

What that means in plain language is that if you put in a certain amount of money, it's going to generate more money on top of that because of something called compound interest. Now, with high interest savings account, you're not going to get too much out of it because it's a savings account. And you know, there's only, I think that one of the best rates you can get is with, I think, EQ Bank, who I bank with.

And depending on the type of account you have some very good solid rates, that are way better than the traditional bank, in my opinion. But still not going to be like the returns you would see when you invest. But that's not the point. The point is just enough to hedge for inflation. And when I say hedge for inflation, that just means that when your money just sits there, like not in a high interest saving account, just plain cash or just in your chequing account, it's actually losing value over time.

And that's because life is more expensive as we evolve, and that is a result of what we call inflation. So when you hear like, oh my God, inflation, like things are so expensive, that's what that means. It just means your dollar isn't worth what it used to be worth anymore. And so you require more dollars to pay for things.

So that's why we do things like saving in high-interest savings accounts to minimize the effect of inflation, but it's also why we invest our money to hedge against that and actually gain higher returns to be able to afford things in the future. So that's the premise behind savings and how you establish that.

[00:09:59] 3. Investing

The third thing you'll need to do is set up some sort of investment account. In Canada, we have things like the TFSA. We also have things like an RRSP and I personally have both. I have multiple TFSAs and one RRSP. I use my TFSA actually for my emergency fund, so that's actually a high interest savings account. And then my short and medium terms are not TFSAs, they're just traditional high interest savings accounts. I do have a TFSA where I invest in the stock market and I have an RRSP that I invest in the stock market.

I use Questrade personally. And what I do for that is, I have a certain amount of money that I allocate to my investment accounts, and I have a portfolio that I've built over time and I contribute to that every month and every paycheck.

So I'm going to break that down in a future episode and we'll talk everything investing. But for right now, I just want to explain the components of the spending system. So let's just rewind a bit and start from the beginning.

[00:10:58] Breakdown spending plan

We have defined our budget. That's our spending plan. So how much it costs us to fund our lifestyle. You've laid that all out. You know, when your bills are due, how you're paying them by what means, credit card, chequing account, etcetera. You know that amount every month, every year, whatever that's coming out of. And then you also know breakdown of those areas. So eating out, transit, transportation, phone bill, mortgage, groceries, all of those categories.

And you can definitely find just a traditional budget category layout online. But if you want some help on this, DM us @growthonthedaily on Instagram. I'm happy to walk you guys through how I do this and help you guys out with your implementation as well. After you define that budget, you then have to establish your savings account, so make sure you open a high-interest savings account.

I recommend personally, EQ Bank. That's just for me personally, but please do your own research. I would just look for an account that has no fees that's online digital banking, and has a high interest rate. So for me, that's EQ Bank for you, that might be something else. And then open an investment account.

I use Questrade. You might use your traditional bank. Or you might use something like, Wealthsimple. Whatever that works for you, do your research. I'm just providing my recommendation, and again, I will do a future episode about investing and we'll actually break down how you invest, what investing looks like, how to pick your investments and make those decisions. So not to worry about that, but those are the three components of the spending plan.

[00:12:25] Maintaining the spending plan

And the goal now is, what you do is you would automate, contribute, and monitor. Those are the three actions. So you would say, okay, I want to spend X amount of money on my savings account and put X amount of money in my investments account.

And what you would do is you would link all your accounts to your chequing account and you are going to automate it so that every time you get paid, X amount of dollars goes to your emergency fund, your short term savings or medium term savings. And then the X amount of money goes to your investments.

So you're, maybe you have a TFSA, a account, maybe you have an RRSP like myself, and then the rest of it you spend on your lifestyle that's. That's it. It's automatic. You set it up, you break it down once, it'll take you a few hours, and then you automate it and then you make any adjustments. If you start to make more money, maybe you want to contribute a little more, but that's it.

And then once you've contributed, you just, you know, monitor. So you take a look at your savings accounts, like at the end of the month and your investments accounts to make sure those, you know, transfers went through. Everything's kind of adding up and you're able to compare it against your savings goals, your investing goals, et cetera.

And then you have to monitor your actual spending, right? Because even though you've allocated that, you still have that breakdown of spending. And what I do is, I honestly spend maybe 20 minutes doing this every Sunday, is I link it to some sort of automated spending tracker or you can manually do it.

I'm just lazy and I want the minimum amount of work. So I use the software Mint. Honestly, I don't even want to recommend Mint because it's not actually really good infrastructure. The software with all the upgrades, it's just not it anymore, but it's free. So, I use it, so you might use it. But what I do with Mint is I've linked all my accounts, all my savings, investings, chequing, credit cards, everything.

It tracks all your spending. And then I put my budget spending plan into there so that I can just make sure I'm like, okay, I'm on track with my spending. But I don't, I'm not like crazy about, you know, tracking every single dollar. It's just to give yourself some guidance and notice where you have some extra room and maybe at the end of the month if you didn't spend as much on like eating out or groceries, maybe you could take that money throw it into a savings or an investment account and you've now increased your contributions.

[00:14:35] Recap

So that's the premise of the spending plan and how I go about managing my personal finances. Just to recap, it's having that spending plan and budget in place, having savings accounts and investments automated and automating your contributions and then monitoring your spending, your savings and your investments over time with some sort of software, whether that's you manually doing it or using a software such as Mint.

[00:15:00] Outro

Alright guys, that's all for this week's episode. Thank you so much for tuning in. I hope you guys learned something. Again, I know this is a complicated topic for a lot of people, so definitely reach out to us on Instagram @growthonthedaily. Any questions you have, I'm happy to walk you through more in depth my process or help you with yours if that's something you would like to do, but to keep you guys, you know, level set on this and freaking out too much on this topic.

[00:15:26] Quality Quote

I have a quote from you from Ramit Sethi who wrote, I Will Teach You to Be Rich, which I absolutely love that book, so highly recommend it if you want to pick that up. He defines a very similar spending plan in his book, and I love this quote from him, from this book that says, "the 85% solution: getting started is more important than becoming an expert".

That's the best lesson I have from personal finances. It's honestly like just set it up and learn as you go. You don't have to be. Mr. Wall Street or Mrs. Wall Street. Don't worry about that at all. You just got to do what works the best for you. And that might be minimal management but it'll get you where you need to go.

So that's it for this episode. Thank you guys so much for tuning in to stay involved in the Growth on the Daily Community, follow us on Instagram @growthonthedaily. Check out our website for all of our resources, growthonthedaily.com.

This is the Growth on the Daily podcast. The podcast, helping athletes overcome the challenges we face on the daily. My name is Rey Lambie, I'm your host. Thank you guys so much again for tuning in, and I will see you next week.