How to make a budget in 4 easy steps
When it comes to managing money, many Canadians take a white-knuckle approach checking their account each payday anxious to see if they made it through with any room to spare. This short-term approach to money management is highly stressful and limits opportunity to improve one’s financial situation. To improve your finances and grow your money, you must first make a budget.
Tips for creating a budget for beginners
Step 1: Gather Your Bills
Learning how to budget can be overwhelming at first. To understand your monthly spending first gather all your bills. These bills represent your fixed expenses, the money you must spend every month to live (rent/mortgage, utilities, car payments, debt repayment, insurance, etc). Map them out in a calendar so you know when each will be withdrawn from your account and then add them up. Subtract the total from your monthly net income (the amount of money you receive on your paycheque after deductions), the amount left represents your variable expenses.
*Some of your fixed expenses fluctuate in cost month to month, like hydro or gas. In this case you’ll want to look at, at least six months of bills to capture an average cost. If you would prefer the certainty of a fixed amount each month some utility companies allow you to sign up for a flat rate program that gives you a steady rate all through the year.
Ready to get started? Check out our easy-to-use Budget Calculator
Step 2: Track Your Spending
Now, you might be looking excitedly at the money left over after you’ve deducted your fixed expenses as spending money but hold on, you need to look at your variable expenses. Variable expenses are things you still need to buy but vary based on your consumption, things such as groceries, gas, clothing, etc. If you use a debit card go through your transaction history to see how much you have spent on these items in the past to come up with an average. If you use cash, keep your receipts, and write down how much you spend so you have an accurate account. Try to track your spending in a budget worksheet or calculator.
That cost of your variable expenses should be treated like a fixed expense, so you always have an amount available to meet those needs.
Step 3: Setting up Savings and Clear Budget Goals
At this point the leftover pile might seem discouragingly small but take heart, the more you track your variable expenses and spending behaviour, the more opportunities you’ll find to cut back! This could mean saving money on groceries with coupons or reducing the cost of clothes by buying second hand. There is a myriad of ways you can save on your variable expenses. So, what should you do with the remaining money?
Before you plan on spending it look at your savings. Don’t have any? Don’t panic you’re not alone. According to a 2019 report from the BDO Canada Affordability Index, 53% of Canadians are living paycheque to paycheque. So why then should you put money into savings? Because that same number of Canadians are one unexpected expense away from financial disaster. Under ideal circumstances you should be saving 20% of your take home income. If this isn’t manageable come up with an amount that is more comfortable for your circumstances.
When setting up your savings you’ll want to establish two funds; an untouched emergency fund dedicated to financial emergencies (such as job loss or a large vehicle/home repair) and a planned spending account. Planned spending can be for short term money goals like a vacation, new TV, or camp for the kids. Having a fun end goal can help you stay on track when spending temptations arise. Plus, setting clear budget goals in terms of specific numbers can help you decide how much money to set aside each month.
Step 4: Mindful Spending
So now with a small fraction of the amount you started with you can indulge in spending. Before you do though consider a more mindful approach. Try to gauge your wants vs needs before you shop and when you’re out there consider if the impulse item in your cart will continue to spark joy once you get home or if it will just add to the clutter.
If you’re shopping for clothes do an inventory of what you already have, to make sure you’re not spending money on repeats or something you won’t wear. Try to shop around sales so you’re getting the best price possible on that coveted item, and when possible consider buying second-hand. Buying previously loved items is a great way to save money and the environment.
Need more guidance? We are here to help
goeasy is here to support you with financial guidance and access to personal loans when you need them. If you’d like personalized information and advice, please reach out to your local easyfinancial branch or easyhome branch, or give us a call at 1-888-502-3279. We understand the challenges you’re experiencing, and we are here to help.