Some people are just natural savers. As children, when my mother gave my brother and I our weekly allowance, I would put it straight into my piggy bank while my brother would spend his the same day on candy or baseball cards. For those of us whom saving does not come naturally (like my kid brother) it’s extra important to exercise good financial planning skills by creating and sticking to a budget.
How credit counselling can help with budgeting
Many Credit Canada clients have been able to build financial planning skills through credit counselling and meeting with a certified credit counsellor. Different clients will adopt different money lessons that work for them. For example, some might choose to only use cash for purchases and quickly realize they don't need a credit card. Others will learn how to create a budget that works for them based on their current income and expenses. Anyone who has taken hold of their personal finances deserves celebration!
Track your spending for one month
There are many ways to track your spending, and once you get into the habit of doing so, it will become second nature. To start, take a 30-day challenge to see where your money really goes. You can use our free Budget Tracker as a way to better understand your spending habits.
Once you see where your money goes every month you can make decisions about what to cut back on. Just be sure to write down your purchases right away. If you put it off, you're more likely to forget the little purchases you make here and there, like morning coffees, which can easily add up over time. Don’t rely on your receipts alone, as not everything you spend money on necessarily has a paper trail. (For example, paying your niece $20 to babysit Saturday night.) After the month is up, take a good look at how much you spend on entertainment, gifts, personal grooming, etc. Decide if these amounts make sense for your financial situation, then determine where can you make cuts.
Plan for expected and unexpected expenses
Try to set money aside in a separate account each and every month, so when surprise expenses arise, like car repairs, or annual expenses are due, like your licence renewal, you won’t need to rely on credit. It's best to set up an emergency savings fund with at least three to six months' worth of your salary, and have a separate chequing account for all of your monthly expenses and expected annual costs.
Establish your financial goals
Take time to consider what your financial goals are. Think about your short, intermediate and long-term goals. Short-term goals are those you expect to achieve within a year or less (i.e., saving for a vacation), intermediate goals are those you wish to accomplish within five years, like buying a car, and long-term goals are those you expect to achieve within ten years, like saving for a down payment on a home or your retirement. Financial goal-setting is an important part of strong financial planning.
Take cash out weekly for personal expenses
Try living on a cash allowance for personal expenses. Budget an amount to withdraw from your account weekly or monthly to use on extras like the movies, the salon, cappuccinos, etc. And when the cash is gone because you've used it all up, that's it! No more spending until the next time you've budgeted to withdraw cash. So spend wisely, otherwise you may have to wait until next month to get your bangs trimmed!
Use the envelope method to budget and spend
Another great strategy to help match your planned budget to your actual spending habits is to break down your expenses into different categories. Then divvy up the funds for the entire month using jars, envelopes, or whatever works for you.
For example, if your monthly net income is $3,000 your rent envelope might contain $1,000, the food envelope may get $300, the transportation envelope might get $130, and so on until the full net income has been divided up fairly. For many people, physically seeing how much they have for each of their expenses can help them stay on track and make wise spending decisions. Can you guess into which envelope any extra money should be put once the basics are covered? You got it, the savings envelope! Don't forget to transfer any funds from your savings envelope into a savings account.
Balance a cheque book
Finally, there is also the old school way of keeping track by using a cheque book to track all your payments that go in and out of your bank account. It’s a great way to keep organized and to avoid overdraft fees.
Free budgeting help is always available
So try one, two, or three of these budgeting tips and see what works best for you and your financial fitness! And if you ever need some extra budgeting advice, our counsellors are always happy to help. Just give us a call at 1.800.267.2272 and we'll set you up with a free appointment.