Budgeting doesn’t have to be a burden.
Sure, it may not sound like fun—but neither is spending more than you make. And while it may sound complicated, you don’t need to be an accountant to get your finances in order.
Unfortunately, if you’re like most people, budgeting doesn’t become priority until money becomes a problem. So whether you’ve found yourself in a hole or are hoping to avoid falling into one, a little money management may help.
1. Swear Off Payday Loans
If you’ve ever found yourself in the red yet you’re still a week away from payday, you’re not alone. Nearly 2 million Canadians use payday loans in order to get through the month. With their catchy jingles and promise of easy money, they do make for an oh-so-appealing option.
But beware. Many, many people who delve into payday loans find themselves getting payday loan after payday loan, trying to catch up but never really being able to, all while the interest keeps mounting at an extraordinary rate. Many people wind up short again before their next paycheck and so they come back for more. It’s a vicious cycle in which fees accumulate, earning payday lenders money each time they loan you money.
So don’t fall for the short-term fix that ultimately costs you in the long-run. And don’t give in to the credit card temptation; but that’s another story altogether.
Now, it's time to begin creating a budget.
2. Get a Grip
On your pen, that is. It’s time to put things in writing.
Budgeting requires that you write down and track your expenses. You’ll see where you’re spending money and where you can cutback. Many people are shocked to discover they spend $100 at Tim Hortons in just one month, when they could’ve brewed that coffee at home.
There was a time when financial planning meant keeping track of all your receipts; today, banking and credit card apps make it easy. You can see what you’ve spent and where you’ve spent it in real-time with just a tap of your phone.
Not convinced? Take a cue from today’s tech-savvy millennials. Outside of banking apps, Canada’s Globe and Mail demonstrates how they’ve taken responsibility for their spending with these three financial management tools.
3. Pick a Program
While tracking charges via apps is a great first step, you don’t use your credit card for everything (and if you do, there’s plenty of ways to better manage your credit cards responsibly). That’s why it’s important to keep track of your expenditures through a spreadsheet such as Excel or Google Sheets.
Best of all, you don’t need to be an IT expert to use these spreadsheets. Most are very user-friendly, and can total numbers and update expenditures with ease.
4. Examine the Essentials
By following your spending and analyzing your spreadsheet, you can easily see where and what your money is going to. Certainly, rent or mortgage, car payments, student loans, and other bills must be paid. But what about some of the other charges? Are their careless charges or extravagant expenses you really don’t need?
5. Make the Cut
We don’t like to admit it, but there’s a difference between needs and wants. A need is generally considered food, shelter, and clothing; extra gigs on your phone, dining out, MEC's coolest gear, and the latest runway looks don’t count.
When you’re serious about budgeting, these superfluous expenses really stand out. And it’s not hard to see where costs can be cut.
6. Enjoy Your Newfound Freedom
Budgeting doesn’t mean giving up everything you enjoy in life; it’s just designed to give you a better understanding of your finances and your financial goals.
Aside from setting up an emergency fund, which is something I highly recommend, your monthly budget should include a bit of spending money for yourself, if you're able—just for fun. Each time you receive a paycheck, determine based on your budget how much you have to play with. (Of course, you'll also want to determine how much you can put into an investment, savings account or RRSP—you’ll thank yourself later!)
By following these steps, you can put yourself in a better position to handle your monthly expenses, prepare for unforeseen expenses, and squirrel away a little bit for another day. But it’s important to remember that complications can arise, circumstances can change, and life can just get in the way. That means budgeting like a boss requires occasional re-evaluation and revision. However, with a budget in place, you’ll be more prepared and better able to adapt to whatever comes your way.