The Top 10 Exercises for Flexing Your Money Muscle ( Numbers 1-5)

As a single mother, Melanie Buffel's journey toward financial competence very much began as a trial by fire.

"I've sort of learned a lot of my money skills through the school of life," she says. "At times there has been a very high tuition cost, you make significant mistakes and learn what not to do."

Though her background is in community economic development, helping women earning low incomes gain control of their household finances for 15 years. Now, as a money coach for Money Coaches Canada, she has been helping middle-income singles and couples whose cash is flowing, but they don't feel like they're getting ahead -- much like she felt once upon a time.

"They're sort of running the hamster wheel of their finances and their cash is flowing, but they're not really capturing it anywhere. They're not saving towards things that they want they're kind of vague about what's happening with their money and they just want a better sense that they're working toward their dreams."

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1. Set Financial Goals
One of the most important practices on the list, Buffel will tell you that financial goal setting is about a lot more than numbers, but what you want to do with your life. "What's important to you? is a really important question to ask yourself about your future," she says.

This starts with being very specific about what you want and then classifying those goals into short, medium and long-term. "A good example of a long-term goal may be wanting to retire, buy a house or putting your kids through college -- anything that's a couple years out," she says.

"A medium-term goal is anything that you want to do within the next year or two. A short-term goal is really anything you spend your money on in the course of a single month, that's your rent, your utilities, your food all of those and when you set financial goals, you're setting all three levels of those goals."

In terms of difficulty, short-term goals are the easiest to achieve because those expenses are right in front of you in your bank statement and the cheque you wrote for your rent or your mortgage. The medium term goals require more planning and research. "It helps put a lot more clarity on your goals and then you can put a number and a time-frame beside them," says Buffel. "The combination of a number and a time-frame allows you to break down your long-term and medium-term goals into short-term ones."

You take the number of months until that goal needs to be achieved and figure out the dollar amount you need to save to get there "It's magic because it really shows people what it will take to achieve their goals and for some people they realize their goals can't be achieved in their current state," she says. If that's the case, you simply adjust the time-frame you gave yourself to achieve it or alter the goal itself. "If you want a $50,000 emergency fund, maybe you make it $30,000 or $20,000 instead."

2. Control Your Cash Flow
Once you have a plan for how much money you need to set aside for things and what is necessary for the rest of your budget you have to somehow setup a system for tracking your expenses. First by looking at your fixed expenses, those amounts that are fixed every month, and the variable expenses, which is where Buffel says people tend to "fall off the rails." "That's the snacks side of the diet," she says. "Most people are good with their meals, but they snack in between."

Once you take a look at those expenses and track them, you'll be able to develop a strategy for not spending more than you're taking in. "It comes back to the question of what's important to you because we're not doing this in a vacuum." she says. "We're not saying spending money on coffee at $4.00 a pop is bad thing, we're saying that I choose not to spend money on coffee at $4.00 a pop because I want to go to Italy next year."

The only limit is your income and even then a lot of people discover that they can make a little more to achieve their goals. When tracking your expenses, all you need to do is keep it simple. "Some people use envelopes of money, some people use their debit card and others use software and spreadsheets," says Buffel.

3. Separate Your Needs from Your Wants
This is an awareness exercise. Most people consider their needs anything to do with their survival, like shelter and food, and wants are everything that you enjoy that doesn't fit into the needs category, but Buffel will tell you it's far from that cut and dry. "I don't think people experience the world that way. If someone buys a Christmas gift for someone, is that a need or a want? If someone smokes cigarettes, that becomes a very interesting conversation."

She recommends really defining what qualifies as a need or a want for yourself. If it's in the need category, you have to spend your money on it and if it's in the want category, you have a bit more choice. To deal with the grey areas, like Christmas gifts, Buffel recommends creating a spending category for them.

"I actually ask people to calculate how many birthday parties they normally attend over the course of the year and then set aside the money they'd like to devote to gifts over the year. However, you don't want to go overboard and spend all your Italy money buying gifts for everyone else. It's all about striving for balance and always asking, 'What are your priorities here?'" she says. Maybe you should give the gift of quality time or make a few gifts next year.

4. Pay Yourself First
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Under her tutelage, moving in that direction includes "strengthening your money muscle" a fitness metaphor for increasing your financial knowledge and skills.

"Really, you strengthen your muscle through use of your muscle, so it's not just an intellectual understanding of how things work, it's also working out -- flexing that muscle, understanding how this work, doing things and then seeing the benefits of it," says Buffel. "I choose to couch financial literacy in fitness terminology because I see a lot of parallels."

Besides, whether your New Year's resolution is getting fit or getting your debt under control, you still have to put into practice and exercise that muscle. So many people don't put money aside for their savings and the fulfillment of their financial goals after the bills are paid, but Buffel says they should be organizing their money in the reverse.

"Go back to those savings goals from step number one and carve off what you need every month to make those goals a reality," she says. "Then the question is not, 'Can you afford to save?' The question becomes, 'Can you live on what you've left yourself with and does that require you to get creative in certain areas or to create extra income?'"

This way, it's never too late to save and through online banking you can set up automated transfers from your chequing account and direct deposits into your savings account. "You don't really notice," continues Buffel, "because you've already set aside the money you have to live with and in the background your savings goals are being achieved."

5. Organize Your Banking
If you're saving for a variety of things, you're going to need to designate a variety of bank accounts, according to Buffel. "If you get a paycheque and it goes into account number one, which is your 'Fixed Costs Account' -- where all of your bills get paid from -- Then, with every paycheque, you transfer money from that account to your savings accounts for what you're saving money for, such as a Fixed Annual Costs Account for your annual expenses and then a second account could be a Variable Annual Costs Account for things like a new TV or clothes and then maybe you want to go travel and then often people have an Emergency Fund Account," she says.

All you need to do is put away the money every month needed to reach your annual goal. "If you have an annual expense, simply divide the number by 12 and then you'll know how much money you need to put aside every month.

"I would also recommend transferring a portion of your paycheque into a second chequing account and that's what I would call, Your Walking Around in the World Money, but it's actually your Variable Spending Account, like if you want to go see a movie or buy groceries, says Buffel. "By actually having a spending account that's separate from your bills and separate from your savings, it actually puts a very clear line on how much you have to spend."

Of course if you're on a very fixed budget, your banking doesn't have to be this complicated, but Buffel still will say that you may want to have a separate savings account. "Even if they have $10 a month in it, I guarantee it makes a difference for people."

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