Avraham Byers – Special to Financial Post
It was spectacular. The crowd went wild when they saw Robin Van Persie leap into the air for his gravity-defying header against Spain – a play he calls “the best goal of my career.” And rightfully so; it was truly remarkable. Scoring that goal has solidified Hollands’ Van Persie’s reputation as one of the world’s greatest soccer players, earning him the title ‘The Flying Dutchman.’
But those astonishing plays are the exception, not the rule; teams can’t rely on them to win games. At the end of the day, good defensive soccer moves are equally important as jaw-dropping goals, although they’re often given less attention. If you want to win, stopping opponents at midfield may not bring in the glory, but it’s a vital component of the game. It’s great to score five goals, but you still lose if they score six goals against you.
The same is true in the game of personal finances. Just like in soccer, if you want to succeed, you need a good defensive strategy. It’s nice to bring in the big bucks, but if the money leaves your bank account faster than it comes in, at the end of the day, you will lose the game. Increasing debt always causes a financial mess, no matter how many offensive points you score along the way. As I always say, “A good income doesn’t always lead to a good outcome.”
All too often we get caught up in the grandeur of landing a high-paying job or scoring those big sales. And who can blame us? Having a successful career can put us in the limelight, make us more popular and even boost our self-esteem.
Defensive strategies, such as saving thousands of dollars by taking public transit to work, or brown-bagging lunch, are not as culturally popular as scoring a big paycheque. We have to change our mindset and really internalize that a win is a win and that a dollar saved is a dollar earned.
If you’re puzzled as to why your debt keeps piling up despite your good income, it’s time to develop a good defensive strategy; a budget. You need a game plan that will enable you to guard your net: to pay off debt and save for retirement, as well as for those unexpected expenses that creep up from the far side of the field.
Following are a few game-day tactics that will help position you for success:
1. View your expenses as your opponent
Just like in soccer, it’s essential that you know your opponent. In this case, it’s your expenses. Analyze your opponent’s “moves.” Start by breaking down your fixed and semi-fixed expenses over the last 12 months – your mortgage, property taxes, investment contributions, utility bills, etc. In today’s online world, this process won’t take long at all; in fact, a client recently told me they did it in less than an hour.
2. Know your score
Once you have a handle on fixed and semi-fixed expenses (your opponent’s basic moves), it’s time to get a read on your score – that is, how much discretionary money you have available to spend. A wide range of transactions fall under this category, and, like soccer players’ tactical manoeuvres, they tend to sneak up on you. The simplest way to handle these intricate plays is to subtract your fixed and semi-fixed expenses from your annual net income. From that, you’ll have your “score” and will know how much you can really afford to spend on things like groceries, gas, flowers, clothes and entertainment (or tickets to World Cup games).
3. Keep your eye on the ball
Having a solid game plan is essential, but it doesn’t amount to much unless you deliver on your strategy. To prevent your opponent from scoring and taking the lead, you must keep your eye on the budgeting ball. Track your discretionary expenses on a weekly or even daily basis to make sure they aren’t creeping up on you. Use a financial tracking software (there are a myriad available), or go the simple paper and pen method – whichever you prefer.
4. Eliminate your opponent
After a month or so of tracking discretionary spending, see how it lines up against what you actually have available to spend. If you’re under budget, great! You’ve taken your opponent out of the game.
Just keep your eye on the ball so you can secure your long-term victory. If you’re overspending, though, it’s time to shift into defensive mode. Look to reduce or eliminate any fixed expenses (hello, telecommunications bill!), and tighten up on your discretionary spending. The goal is to eliminate your opponent and make your budget balance, every month.
Budgeting may be a little lackluster compared to scoring great financial goals, like a high income, or a high-profile job, but they’re equally as important. If you want to win the game of personal finances, you have to think defense. So keep landing those goals whenever you can; but just be sure to always protect your net. Making consistent, defensive financial plays will put you in a much better position to take the lead and win your financial game.
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