The 5S Spending Plan
THE STACK #38I used to avoid budgeting because I felt it meant cutting back on things I enjoyed.
I tried multiple budgeting methods, such as the 50/30/20 and the Zero-based budget, but the percentages never aligned with my goals, and I always missed something in my zero-based budget.
After years of experimenting with different budgeting methods, I came up with my signature 5S Spending Plan.
I discussed the 5S method during my TV segment on Global News, and I have used it to help my clients create an effective spending plan that they enjoy.
Even though I talk about investing all the time, I don’t believe in investing and saving all your money while depriving yourself of the things you love.
The 5S Spending Plan helps you find a balance between saving and investing for a safe and secure future and spending on the things that bring you immediate joy and satisfaction.
It ensures that all the key areas of your finances are covered and you’re not missing the important things in your budget.
The difference between the 5S spending plan and all other budgeting methods out there is that the 5S method focuses on the feeling and end result that an expense evokes and not just the math. Using this method helps us improve our relationship with money because we know we are spending on things that matter to us, and it creates a positive feeling whenever we spend.
THE STACK
Security
The security category is allocated towards things that help provide a secure future and bring the feeling of FREEDOM.
Items in the security category include:
Investing for retirement
Investing in assets that can replenish your income like Stocks, Exchange Traded Funds (ETFs), Real Estate, etc
The funds that you allocate for security can be housed in accounts such as:
Registered Retirement Savings Plan (RRSP)
Tax-Free Savings Account (TFSA)
Registered Education Savings Plan (RESP)
First-Home Savings Account (FHSA)
401K
Roth IRA
Other registered investment vehicles
Safety
The safety category is allocated towards things that provide a safety net and bring you PEACE OF MIND, knowing that you are protected whenever something unpredictable happens. It also includes saving for short-term goals.
Items in the safety category include:
Emergency Fund
Sinking Funds
Term Life Insurance
Critical Illness Insurance
The funds you allocate for safety can be housed in a
High-Interest Savings Account
Survival
The survival category is allocated towards things that are necessary for survival and bring you STABILITY. Without these things, it will be almost impossible to live.
Items in the survival category include:
Housing
Utilities
Transportation
Health
Car Insurance
Home Insurance
Food
The funds you allocate for survival can be housed in a
Daily Chequing Account
Satisfaction
The satisfaction category is allocated towards things that bring you satisfaction and the feeling of JOY. These things aren’t necessary for survival but will improve your quality of life.
Items in the satisfaction category include:
Household Items
Personal Care
Entertainment
Eating Out
Fun
Subscriptions
Hobbies
Child Extra-curricular
Pet Care
Personal/Professional Development
The funds you allocate for survival can be housed in a
Daily Chequing Account
Solvency / Stewardship
Solvency can be used for those with debt. You should allocate extra payments to help pay down your debt. This category brings the feeling of EASE.
Stewardship can be used for those who want to give to charity, religious organizations and family and friends. This category brings the feeling of CONTENTMENT.
How to use the 5S Spending Plan
Step 1: Calculate your income
Calculate how much income you receive from all sources.
When creating my budget for the year, I like to start with a Master Budget. The master budget ensures that my current income can cover all my expenses and that I have a plan for all my financial goals for the year.
If your income fluctuates, use the average income you’ve received in the last 3 - 6 months. It’s important to use the average income because this will make sure that all your expenses will be covered even in your lower income months.
Because your income and expenses may vary each month, you can use the master budget as a starting point and then tweak it to reflect your actual income and expenses for the month.
Step 2: List your expenses
List all your expenses by allocating them under each 5S category. If you notice that some 5S categories are blank, this is a sign that some areas of your finances need attention, and you need to start allocating funds toward those goals.
Step 3: Write your due dates for each bill
Most of your bills have a due date. To ensure that you do not miss a bill payment, write down the due dates for each bill.
Step 4: Align your pay cycle with your bill due dates
Most people get paid bi-weekly and bi-monthly. Have you ever noticed that some paycheques get spent a lot faster because all your bills seem to be due at the same time? To avoid this, align your bill due dates to your pay cycle.
Example: If your next pay cycle is from the 15th to the 29th, you should assign any bills due within that period to this pay cycle.
If bills due under one pay cycle are more than the other pay cycle, you can move some of the bills to the lighter pay cycle.
You can do this by simply leaving the funds in your account until they are due.
For example, you got paid on the 4th, but your car insurance of $150 is due on the 17th. When you get paid on the 4th, simply transfer the $150 into your chequing account and leave it there until your bill provider charges you.
You could also make it easier by contacting your provider to see if you can change your due date from the 17th to the 4th so that the bills due on each pay cycle are even.
Step 5: Budget to zero
Ensure that all your income has been assigned.
If you have some money left after you have allocated all your expenses, you can use the rest as a buffer for any unexpected expenses that come up that month, increase your savings/investing, or whatever category you deem important.
If you run out of income before allocating all the categories, this is a sign that you do not make enough money, and you need to either increase your income to match your lifestyle or cut back on some expenses to match your income.
Step 6: Assign percentages to each category
Assign percentages to each spending category. Seeing this visual could help you make the necessary adjustments to align with your priorities.
For example, are you spending only 5% of your income towards investments while spending 10% towards a car or even eating out? This could show you that you’re prioritizing a car, which is a depreciating asset, over investments that increase in value over time, and it may be time to adjust your budget accordingly.
Step 7: Split your expenses into separate bank accounts
Having separate accounts will help you stick to your budget and avoid overspending. It also ensures that you’re not tempted to dip into other categories like your savings. This is the budgeting hack that I have been using for years to help me stick to my budget.
You should have at least three separate accounts for:
Savings and transfer to investment accounts
Fixed bills
Daily Spending
Step 8: Track your spending
Track your spending each month to see how much you spent. This will help you see if you’re on track to hit your financial goals and areas you need to adjust.
Step 9: Adjust your budget
Your budget is a living document and will change based on different seasons in your life. Some things might be necessary for a certain period and could be removed later. Your budget should serve you and not the other way around.
If you find that you’re always overspending in one area, this means that your budget isn’t realistic, and you need to adjust it to match your actual spending.
THE TOOL
The 5S Spending Plan Spreadsheet
I have been using this spreadsheet for nearly a decade, but I’ve only shared it with my 1:1 Clients so far.
So many of you have been asking me for a budgeting template. Since the templates have previously been tailored to my clients, I am currently working on tweaking them so that they can be available to the general public.
I will release it for purchase on April 11th, but you can pre-order the templates for half off at $20 here before April 10th.
When you purchase the 5S spending plan, you not only get a template but also step-by-step instructions and tips and tricks on budgeting effectively.
The 5S Spending Plan includes:
The 5S categories
Budget by pay cheque
Know exactly how much to send to each account every month
Track your spending
Track your yearly bills
Track your percentages for each spending category
Track your emergency fund progress
Track your sinking funds progress
Track your debt pay off progress
THE ACCOUNTABILITY
Review your current budget to ensure that all the five S’s are covered.
THE COURAGE
THE KNOWLEDGE
Revenue
Revenue is the total amount of money earned by a person or organization from their business activities.
It includes all the income generated from sales, services, and other sources.
Revenue is the top line of the income statement and is calculated before expenses and taxes are deducted.
It is an essential metric for measuring the performance of a person or organization.
Income
Income, on the other hand, is the amount of money that remains after all expenses have been deducted from revenue. It is also known as net income or profit.
Income is the bottom line of the income statement and is a measure of the profitability of a person or organization.
It reflects how much money a person or organization has earned after accounting for all the costs and expenses associated with their business activities.
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