Get back on budget

By Bryan Borzykowski on September 20, 2012
Estimated reading time: 4 minutes

Most people know how to budget, but sticking to a plan can be hard work. Here's how you stay on track.

There’s one thing harder than creating a financial plan—sticking to it. Alan MacDonald, an Ottawa-based CFP with Richardson GMP and author of The Copperjar System, knows firsthand just how difficult it is to adhere to a plan. Nearly all of his clients fall off the financial wagon in the months after developing a budget, he says. MacDonald is guilty of doing this too, noting that he tends to veer off course himself every 18 months or so. “It happens all the time,” he says. “The expectation has to be that this won’t go swimmingly and that you’ll slip up.” Typically, plans go awry when a big life event occurs, like the birth of a baby, a job loss or a death in the family. But smaller things could also get in the way, such as increasing education costs and a higher mortgage rate. MacDonald finds that when something does affect the family budget both people tend to avoid redoing a plan for months. “I don’t do it immediately,” he says about revisiting his own budget. “Whatever’s knocked you off course has created enough dissonance that you typically avoid it until you say ‘enough.’ ” That wake up call can happen a few ways. For some it’s when the lines of credit or credit card debts start accumulating. For others like MacDonald, who has no debt, the jolt comes when he can’t meet his savings goals. “I’ll notice that there’s less money,” he says. The first slip up is always the hardest to deal with and it often takes a while to get back on track, says MacDonald. But the longer someone has a plan, and the more times they refocus, the easier it is keep up. Although everyone makes mistakes, there are ways to reduce the chance of bungling your plan. Michael Berton, a Vancouver-based CFP, says people need to derive some satisfaction out of a plan. He suggests creating short- and long-term goals and then setting deadlines. If someone wants to pay off their car, he’ll suggest they pick a date to do it by. “You have to feel like the plan is working,” he says. “People need realistic goals that they can meet. If they feel encouraged and see the progress, they’ll go forward with the other steps.” He also recommends consolidating investment accounts. In one extreme example he worked with a client who had 10 RRSPs. “How can you figure out what you’re doing?” he asks. Not only will it be easier to keep track of your money if it’s all in one place, but it’s possible to get a fee break if all your funds are in one account. While a financial plan often requires slashing expenses, MacDonald says it’s important to keep the things you love to do most, otherwise it’ll be impossible to stick to it. If a summer vacation is important, then take it, but look for ways to spend less on the trip. It’s also a good idea to use cash on discretionary spending. A financial plan will reveal how much extra money you have to spend on things like shopping and entertainment. Instead of putting those expenses on a credit card, where you can’t be sure how much you’re spending, use dollar bills. If you have $1,000 to spend a month, take out $250 a week. When that money’s runs out, the spending will have to stop. “There’s nothing simpler than looking at a stack of bills getting smaller through the week,” says MacDonald, who adds that he was able to cut out about $2,000 of spending every month just by going to cash. There’s one more thing people need to do to: review, review and review some more. Berton tries to meet with clients at least three times a year—annually for a big review where he discusses long-term goals and two other times to make sure nothing about the plan has changed. He also says that people also need to be proactively looking at their plan on their own every couple of months and review their net worth statement at least once year. If an individual’s net worth isn’t getting bigger then something’s wrong. Reviewing is also a must when things go askew. Hopefully it’ll be easy to get back on track, but, Berton says, sometimes the entire planning process needs to start from scratch. As frustrating as losing track may be, MacDonald says not to worry. Just get back on the wagon. “It happens,” he says. “Life gets busy. Just recognize that it’s going to happen and then fix it when it does.”