IT’S March, the third month of the New Year, and for most of us a new year signifies new beginnings… a clean slate… starting over. With almost a quarter of the year already gone, we still have resolutions. One of the most important areas of reform at this time is our finances, and since money does not grow on trees (despite numerous attempts), it is clear that we all need to learn how to manage our dollars and cents.

So how do we do this?

One word: Budgeting.

While I know what I just said is as appreciated as pulling teeth, just hear me out while I suggest four simple rules to help you on your way to financial stability.

Rule 1: Make every dollar work for you.

Your money shouldn’t tell you what to do. When you earn money, you plan how it will be used and follow through as planned. It starts by dividing your account balance into categories such as food, gas, utilities, etc. This way, instead of buying something just because you see a big (or small) pile of money in your account, you will instead make a decision based on the category balance. Breaking your money up into smaller targeted goals allows you to make better spending decisions. Let me pose a scenario: You have $20,000 in your account budgeted as follows:

You have $10,000 for food, $3000 for gas, $4000 for utilities, $1000 for entertainment and $2,000 for loan payment. A friend comes by and invites you to a soca party which costs $1500. You don’t look at your $20,000 balance and ask what time they will be picking you up. Instead, you download the latest soca podcast and invite a few friends over for a $200 games evening.

From time to time things will come up unexpectedly which will cause you to have to adjust your budget. This is perfectly normal, expected and encouraged. It shows you are planning and then adjusting your plan as the need arises. Because every dollar has its role, the extra needed for an unexpected event will have to come from somewhere, so you simply prioritise and make some adjustments.

Rule 2: Save for a rainy day

No two months are equal and something will ALWAYS come up. Unfortunately, our expenses are not evenly spread from month to month (though we would love them to).

If we don’t plan for the possible high-expense months, we are in for financial turmoil. By taking the large, less-frequent expenses and breaking them into smaller, manageable monthly amounts, you allow yourself some room and some financial peace. When that big bill comes (for example, your car insurance), by saving monthly and in advance, you pay it with ease. NO STRESS!

Rule 2 works in tandem with rule 1. By assigning every dollar a job, you know exactly what your money should do for you before your next payday, and that allows you to plan for what you need to pay in the future. It’s all about anticipating the unexpected. But this is not only about paying bills and debt; this rule can be used to save for things you want as well such as a vacation, for example.

What you buy doesn’t matter, once you’re adequately informed and fully aware of your spending. Budgeting this way makes the unexpected expected.

Rule 3: Go with it

A budget is no different from your daily plans, they change all the time. Sometimes you may end up overspending in a particular category; just go with it. Remember, you’re in control. So you spent $2500 in clothing this month

when you planned for $1800 — that’s fine!

Your budget did not fail; you just have to make some adjustments to another category or next month’s budget. No budget is perfect and you will never have a single month without some overspending. Budgeting is not about managing that which you can foresee easily; it is about managing the unforeseeable more effectively. Rule 3 is about being flexible while being proactive and responsible with your money.

Rule 4: Live on what you earned last month

This is not impossible. Here’s how you do this. After months of following the first three steps, eventually you would have learned how to save up enough money to cover a month’s expenses. As part of the budgeting, assign some funds you have now to future needs, just like saving for a rainy day (rule #2). When you save that money and put it to work, it is called a buffer.

The buffer, as the name suggests, allows you some flexibility between what you earn and what you have left to invest, breaking the shackles of the paycheque to pay cheque cycle. It also provides some cushioning in the event of unexpected events, while allowing you to budget for a whole month.

Let’s say you earn $5000 a month and your monthly expenses amount to $4000, you will be able to save $1000 a month towards your buffer. In five months your buffer would have accumulated enough to cover an entire month. The buffer is designed to improve cash flow, so store it where you manage your flow of cash, such as a chequing account, for example.

Life has so many expenses, but don’t feel overwhelmed. You are in control. Come in to Stocks & Securities and have an advisor help you figure out ‘di investing ting’ today!

Jodi-Kaye Allen is an Advisor Associate at Stocks & Securities Ltd.