Cash flow planning: Identify your habits

It’s important to identify any frequent financial habits that trigger overspending.

To do this, monitor the following items: Recurring expenses: The frequency of an expense is connected to how much is spent overall on that item or category. For example, you don’t often overspend on monthly, set expenses such as car insurance. But, the costs of weekly trips to grocery stores or of daily stops at favourite coffee shops, for instance, can easily rise because they’re variable expenses.

Say you spend an average of $170 a week on groceries, for a total of $680 over four weeks. If you decided to go shopping 10 times over that same four weeks instead, you’d probably spend more than $68 per trip. You might make impulse buys or use $170 as your reference point and spend more.

Spending frequency: If you try to manage your day-to-day spending by giving yourself a monthly amount, you might find it more challenging to control overspending than if you used a weekly budget instead.

The proof

Years ago, I conducted a successful spending experiment. I used myself and a group of testers. Here’s what we found.

If we gave testers a target of spending $2,000 per month, that amount lasted them an average of only 2.5 weeks. In fact, they spent so much that they were on track to spend $41,600 per year or $800 per week.

But, when we gave clients a weekly spending target of $500, they didn’t overspend. In fact, their average weekly spend was on track for $24,000 per year or $461.53 per week.

As you can see, when it comes to your cash flow, frequency can make or break the plan.

Stephanie Holmes-Winton is a Halifax based financial services educator, author and speaker.