Money Management Systems

Money Management Systems
stevewelker 3.09.2014

Once you’ve reviewed your spending and created a realistic monthly budget the next and equally important step is to manage your monthly income and stick to your budget. There are dozens of ways to manage your money so you’ll have to decide what works best for you. This process may involve trying a few different tactics or combining approaches to suit your needs. The most important thing is to stay diligent. Making a budget and not managing your income on a monthly basis is sort of like buying a gym membership and never going to the gym. Neither approach will lead to you achieving your financial or fitness objectives.
The most important aspect of any of these systems is to know when you’ve spent all of the money you have budgeted in any specific category so that you can revise your budget (i.e., increase one expense item while reducing another) or stop spending any more money until your next budget cycle. Keep that in mind when tailoring your individual system.
Example Budget

Monthly Net Income$1,500
Utilities (Hydro, Water, Cable)200
Cell Phone50
Public Transit / Taxi150
Monthly Total Expenses$1,500

* Expenses must match or be less than income

Option #1 – Physical Systems

Physical systems involve you cashing your pay cheque and sorting your cash into physical compartments such as envelopes, boxes, or jars. Each container represents a budget line. Based on the example above the individual would put $50 in his cell phone container, $150 in his public transit container, $250 in his food container and so on. Each container would be labeled and as bills were paid he would take the money out of the related container. The power of the physical system is that when you want to go out for dinner with a friend and discover that your food container is empty, you can either adjust your budget by taking money from another container or deciding to wait to spend the money until next month. Physical systems provide quick feedback on the accuracy of your budget as you’ll know you’ve budgeted too little or were spending too much if you empty your containers well in advance of month end. This is nearly a fool-proof way to manage your finances and definitely worth considering if you’re not overly tech-savvy.

Option #2 – Declining Balance

For this method you need to list your expense names across the top of a piece of paper or spreadsheet from left to right. Beneath the name, your budgeted monthly amount is written. Every time a purchase is made it needs to be recorded on the paper and reduced from your monthly budget. You can enter your expenses as they occur, daily, or weekly.  For example:

RentUtilitiesCell PhoneTransitFoodClothing
(100) Hydro(20) PP Card(15) Taxi(60) No Frills(10) Scarf
(800) Rent(75) Water(30) PP Card(110) Pass(8) Harveys(5) Socks(15) Movies

When you update the tracking sheet every time that you spend money you’ll know when you’ve hit your budget and understand your balances well enough to reallocate money between categories if necessary. By using cash as little as possible your bank statement will represent a summary of your spending and help you when recording your purchases on your declining balance worksheet. Check with your bank to understand if additional fees will apply by using your bank card a lot. Make sure that regular use of your bank card won’t result in expensive bank fees before moving away from a cash system.

Option #3 – Technology

There are numerous online and offline tools to help you manage your money and stick to your budget. A few of Welker and Company’s favourites include and Quicken. Both allow you to setup a budget and link your bank statement to it. This way, the software automatically allocates your expenses to different budget categories, prints reports, and can even be setup to notify you by email if you’ve outspent your budget. There are also numerous budgeting apps available for your mobile phone. If you have a favourite, let us know so that we can share it with everyone!
In conclusion, you can’t “set and forget” your budget. Managing your finances is a never ending task, but it does get easier as it becomes a habit. You’ll eventually settle into your budget and intuitively know when you’ve almost reached your spending limits without reaching into an empty container. The first time you go for a run after weeks, months, or years of not running is always the worst just like the first month managing your finances with a new system is also the worst; it gets easier. Welker and Company has faith in you and wishes you the best as you take control of your monthly spending and work towards your financial goals. You can do it.