What are you saving for?
Is it something small, like a new outfit? Something larger, like a new iPhone or a car? Or something that seems like it’s a pretty distant, far off, future goal like sending your child to university or retiring and moving somewhere warm to avoid the brutal Canadian winters?
Whatever it is, you’re going to need a game plan to make that purchase, or lifestyle, a reality. Enter the budget.
What is budgeting? Why should I budget?
Let’s get back to basics, sure you may have heard of a budget, but have you ever actually sat down and given thought to why it’s important or really, what a budget actually is? Yes, a budget is - the process of creating a plan for your spendings and savings, but it’s also so much more. It’s one of the most important and accessible tools to unlock financial freedom and take the guesswork and stress out of your personal money management. How? Well, a budget balances the money you earn with the money you spend, and can help you become more stable financially. It helps you keep track of your money and when you keep track of your spending, you’re more likely to develop good habits and make progress towards your goals. You more clearly see where your spending habits and choices go off course (yes, we all love a big sale but did we really need to buy that?).
Maybe you already have a budget, or maybe you know you should but it just seems like a hassle, whatever your feelings are, since you’re already reading this article we’d wager a bet that you’ve got the willpower and motivation to try a budget out.
How can I track my spendings & savings?
First, track all the sources of money you have coming in every month - from your job, side hustle, government benefits, grants… Add them all up.
Organize everything you spend your money on each month into two categories: “must-have” and “nice-to-have” spending.
The “must have” spending will include the expenses we need to pay each month. Likely, these are consistent costs like rent, car payments, phone bill, and groceries. The amounts may change slightly, for example you may spend more on your food from month to month, but generally they are standardized monthly costs.
The bucket of “nice to have” spendings includes everything that you don’t NEED to spend money on, but would be nice to have. A nice dinner out with friends or a new cream for your skincare routine would all be optional but great things to have. Listen, sometimes these nice to haves also might be a need to have. You may really need to order takeout one night to make you feel good, we’re not going to judge you. BUT try to be honest with yourself about what is necessary versus ideal.
How do I make sure I don’t overspend?
Great question! The standard way is to find the total of all the money you’re spending and the money you’re earning. If you’re spending more than you're earning, consider cutting down on your optional spendings. Maybe you don’t need that new cream at all, or maybe you’ll do fine with only eating out once every week. Always aim to have some money left at the end of every month. Remember, being rich really means that you spend less than you make. It’s easy to get caught up in the keep up game but studies show that people who live within their means are a lot happier and generally more fulfilled than those who go into debt trying to keep up with a lifestyle they can’t afford.
How do I save up for that big item purchase?
What happens when you earn more than you spend? You can save! Let’s go back to where we started this article, saving up for that big ticket purchase!
How do you do this? Calculate the total costs of those big ticket items (aka your motivation and big goal), and work backwards to see how much time and money you need to save every month to get there. Don’t forget - life happens. The amount you can save each month may change depending on what’s going on in your life, you may have an unexpected car repair or need to buy a gift for a family member, that’s all part of the process.
How do I commit to my savings?
Next up is the hard part - staying committed to your savings. If your financial situation allows for it, we really recommend using automated deposits to put aside money into your savings account. This takes the temptation out of overspending by saving that money before you have the opportunity to spend.
Bonus, if you’re working and your company offers an matching program, take full advantage of it to ensure that you’re not leaving any money on the table. This can help you save thousands of dollars over your lifetime towards that sunny retirement we mentioned earlier.
What else should I save for?
Before you put all of your savings towards that big ticket purchase, there’s two things you need to take care of first.
If you have any , try your best to pay that off. Interest is money you’re paying on top of the money you owe. So the faster you can pay it down, the less money you’ll sink into in the long-term.
Another unfortunate truth is that you never know what life might throw at you. Those unexpected car payments we mentioned above? Last minute presents? Repairs around the house? Laid off from your job? You want to be prepared with an emergency fund. A good rule of thumb is to build up enough to cover a few months (3-6) of your must-have expenses! But, this can vary based on your personal situation, not everyone will have the financial means to keep an emergency fund on hand with this type of money. You can try to build one slowly over time!
What if I fall off of the budget bandwagon?
We’ve said it before, we’ll say it again: things change. You might have a change in income, an extra cost to pay, or you might not feel like you’ll ever have enough saved to get to those goals, but a better financial future starts with habit building. Review your budget plan every now and then to re-evaluate your plan and check out your progress.