We’ve gone through financial decluttering together in my previous post. By now, I hope your financial products are all tidied up and make lots of sense to you. Hopefully no more neglected accounts are lingering and no more unwanted charges are haunting your paychecks.

It’s time to build the 3 pillars of self-sustaining wealth including a foolproof 3-step budgeting, a can’t-fail automated saving, and a stress-free long-term investment.

Pillar 1: The 3-step budgeting that has worked wonders for me

I don’t know about you but complicated budgeting hasn’t worked for me. I spent countless hours hunting for THE perfect budgeting template. Hubbie and I even coded our own budgeting tool in python based on our actual spending behavior. What a pair of nerds! Sadly, the more details I put on my budget, the easier I failed to meet my saving goals.

Except for a few fixed monthly expenses like rent/mortgage, utility, phone/internet, transit pass, most other expenses vary from month to month and you can’t always plan ahead. Putting a rigid budget on those expenses will freeze your personal and social life. But you perfectly know you can’t let these expenses go overboard uncontrollably either.

So where’s the balance? This question had been kicking constantly in my head until I found what I now call a foolproof budgeting technique. It hasn’t failed me since day one of implementation.

Here is the 3-step budgeting that is as simple as pie but has worked wonders for me.

1. Know your total take home income. This step is fun to do. Everyone loves to count the money coming into their pockets. Just add up all your sources of income and know very well your monthly take home number.

2. Set aside enough money to cover your estimated expenses. Where does your estimated expense come from? Not from what you think you should spend, but from what you actually spent. Make a reasonable estimate of your total monthly expense based on what you actually spent in the last three months. Three months should be good enough as we can always adjust along the way. Also remember to factor in the occasional expenses such as insurance and annual fees. But don’t bother categorizing your expenses. Give yourself a lump sum allowance. Leftover amount from this month can take care of overspending of next month as long as you spend rationally.

3. Automate to save the rest. The math is simple: your monthly take home minus your monthly estimated expenses equals your monthly savings. Automate this savings amount right after you get your monthly paycheck and enjoy watching your savings grow.

You’ve heard this so many times: save as much as you can. This familiar but vague advice once got into me and actually drove me nuts for crafting a tight and unrealistic budget hoping to save all I thought I could. Turns out, my saving goals were still not met and I often found myself regretting and making excuses for overspent amounts.

I later learned that when I had a realistic estimation of my expenses and left enough money aside to cover them, I would never have to touch what belonged to my savings.

This seemingly uncommon budgeting technique has worked like a charm for me. It sounds counterintuitive, but yes, be liberal with your expense. You and your soul need to be fed before you can move the earth. Of course you have to be reasonable but don’t sweat the small stuff. Give yourself some flexible rooms on the expense as long as you are disciplined with the automated saving.

The keys to a long-term successful budget are flexibility and sustainability, not rigid goals nor extreme frugality. Focus on the big picture of your happy, healthy, and wealthy self.

Pillar 2: Savings allocation and automation

Now that you have a monthly allowance for expenses and a remaining sum for savings. You may consider decomposing your total savings into different goals:

  • Emergency funds for the rainy days;
  • Debt payments to repay student loans, consumer debts, and other high-interest debts;
  • Short-term savings for big lump sum expenses such as home down payment, home maintenance/renovation, new vehicle, wedding, honeymoon, vacation, holiday expenses, etc.;
  • Long-term savings for your own retirement or for taking care of your aging parents (plus in-laws) and growing-up kids.

As I mentioned in my previous post, I have multiple saving goals at the same time and keep them in separate savings accounts. I love to see each of them grow as planned.

Multiple savings accounts also help prevent a spending catastrophe. You certainly don’t want your exotic vacation to overgrow and eat into your retirement savings, do you? Fun fact of the day: according to a poll by BMO I read recently, Canadians prefer vacation savings to retirement savings, so the invasion tendency is actually concerning.

Three important things to keep in mind with saving:

  • Your savings should always be used to pay off all debts with higher interest than the return rate you can get from your savings/investments. This is a no brainer.
  • If you have no revolving debt, your long-term savings should always be the top priority regardless of what else you’re saving for. The power of long-term compounding is undeniable.
  • Automate automate automate!

Pillar 3: Long-term Investing

Congrats on being a disciplined saver! The next step to build a secured financial foundation for our future is to invest. We should put our long-term savings into an investment portfolio of stocks, bonds, funds, real estate, businesses or a combination of those assets. Higher investment returns usually come with greater risks, so choose your investment carefully based on your financial situation, age, and risk appetite.

If investing sounds like a strange animal to you, you can choose to pay a professional to manage your investment portfolio. Just be aware that a portion of your investment return will go towards managing fees. Here are some quotes from what Warren Buffet wrote in the 2017 Annual Report of Berkshire Hathaway Inc.:

Performance comes, performance goes. Fees never falter.


When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds.

Hubbie and I are DIY investors. We put the savings we’re not gonna touch in the next three years into investments to work for us. We’re taking risk in a few individual blue chip stocks, but our portfolios are mostly composed of low-cost well-diversified Exchange Traded Funds (ETFs).

More on investment will come in my future posts. Meanwhile, there’s a great book that I highly recommend for everyone interested in investing: “Millionaire Teacher” by Andrew Hallam. This well-organized and well-written book makes a strong case of index & ETF investing.

If you want more, canadiancouchpotato.com is an enormous reliable resource for lazy passive (but disciplined) investment. Happy investing!

Wrap up

Here are my two cents: don’t ever force yourself on an extremely frugal budget if that’s not your way of living unless you’re truly in a personal financial crisis. Long-term financial planning needs to be strategic, sustainable, and persistent.

The bottom line: Simple realistic budgeting makes spending a joy and saving a comfort; automated saving with clear goals helps reach saving targets with ease; low-cost passive investing is the key to long-term prosperity. These are the three foundations of any personal financial success.

The footnote: The planning and execution I’m sharing here utilize the personal finance system that I urged people to clean up previously. If you haven’t done so, please have them cleaned and tidied up before you can effectively implement your own exciting plans.

Stay tune to my next and last post in the series – how to optimize and maintain what you’ve decluttered and set up so far.

Related posts in the “Get Your Finances in Order” series

1. Get Your Finances In Order – Step 1: Decluttering

2. Get Your Finances In Order – Step 2: Building The 3 Pillars Of Self-Sustaining Wealth 

3. Get Your Finances In Order – Step 3: Optimizing And Maintaining

Matcha Finance

Jenn sharing personal stories and practical tips on maximized earning, strategic saving, smart spending, and long-term investing.

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