Did you know that although almost every Canadian is capable of creating a budget, budgeting doesn’t allow us to get more life out of the money we take home each month? Budgets are based in economic theory which assumes that we make rational, efficient decisions, all of the time. A cash flow plan is based on advances in studying human behaviour and psychology, and how we actually behave with our money, which is often affected by emotions.
Budgets work well for projects and events with a beginning and an end where conscious decision making is required. Cash flow plans show you how to deal with everyday spending, categorizing your expenses into ones that carry emotional risk of overspending, and those that don’t. With a set weekly amount in place for the spendables, and using convenient tools and apps to maintain the plan over time, you can usually free up income that allows you to save more, pay off debt and get ahead financially.
Cash flow plans work with your brain and not against it in another way: by focusing on a short-term financial goal that you want to achieve in 6 to 18 months, you motivate your behaviour to stick to the plan. It is human nature to overvalue immediate rewards, while putting less worth in long-term consequences. (Present bias - the tendency to prefer a smaller present reward than to wait for a larger future reward.)
The full, written plan gives you an easy way to control spending where you can and shows you where you will be in 10 years if you follow the plan. Most people are able to see a difference in their financial affairs within 30 to 60 days of beginning. Has a budget ever given you such results?
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