Money on a Budget – 5 Tried and True Steps to Better Budgeting

/

Take it from a girl that saw “budget” as just another “four” letter word: being able to take control and manage my finances (especially during these tough times!) is a valuable life skill that I wish I’d paid more attention to earlier. 

For me, like many people, COVID-19 has brought a lot of uncertainty, particularly financially. That said, it has also presented various opportunities such as learning how to get control of my finances. 

My budgeting journey all began when my employment situation changed as a result of the uncertainty brought on by the pandemic. I was forced to deal with new and daunting concepts like: If I have a reduced take home pay of say, $2,000 per month, with all my fixed expenses remaining at near pre-COVID-19 levels, how can I still actively live my life without going into the red? Or better yet, how do I keep up with current expenses and pay off the mounting credit card debt with limited income? 

As you scroll through and learn about my experience, please keep in mind that budgeting is not a one size fits all approach! Some of the concepts that worked for me may not be an exact fit for your needs. If this is the case, no worries! Depending on what you are looking for, budgeting offers a variety of approaches and tools that can dramatically change your budgeting experience, so be sure to explore what works best for you. 


Budgeting Breakdown: 

  1.  Check Yourself – A Spending Audit  

  2.  Where is your money going? 

    1. Fixed Expenses

    2. Variable Expenses  

  3. Girl, Get Yourself Some Goals! 

    1. Short Term 

    2. Long Term 

  4.  Platforms, Programs and Penmanship  

  5.  Review & Revise 


Getting Started 

Alarming as this may sound, as a twenty-something year old I previously had no idea how much money I was bringing home on a monthly basis after tax. Now, you may be thinking “how is this even possible?!” Well, as it turns out, the figure in my head was much larger than the cheques being auto-deposited into my bank account. This brings me to step one in the budgeting basics: determine exactly how much of your earnings you are bringing home every month after taxes, and make note of this figure.

Likely one of my more cringeworthy moments throughout this process was examining my credit card AND debit card spending history over the last three months. Now three months may seem like a long review period, so feel free to switch up the amount of spending history you are reviewing because it can be a pretty “enlightening” (or pretty painful…) experience. 

While going through your spending, start writing down or tracking the major categories of fixed and variable expenses you are seeing your money go towards. Your fixed monthly expenses may be things like rent, car payments and groceries, whereas your variable expenses could consist of discretionary purchases, such as take out from your favourite pizza place and entertainment. This step is super important as you are essentially determining where your monthly paycheck is going. For me, my credit card history alluded to approximately 70% of earnings going towards Skip the Dishes…So yes, being thorough is crucial. 

After reviewing your spending history and identifying your categories of fixed and variable expenses, generate an estimate of how much per month you are spending in each category. Reviewing your spending history and generating estimates of your spending habits may feel like an internal guilt trip, but they will reveal your actual spending habits so you can make some real assessments on your spending going forward. For example, do you need to cut back on the take out to give a little more to your grocery bill? Or, can you decrease your spending across all categories to work toward some bigger financial goals? Now is the time to get critical about your spending and get into the bigger picture of your financial woes and goals. 


From Where is my Money Going, to Where I Want it to Go

So you have completed the hard part of evaluating your current situation, but what about setting some goals? Whether you are trying to pay off credit card debt or put some money aside for retirement, it’s helpful to break these goals down to monthly bite-sized chunks to make them more realistic. 

Start with making a list of some short and long term goals that you would like to accomplish; if you need some ideas, check out my goal shortlist below. Then revisit the budget outline you created and determine how much money you have left over at the end of each month after expenses. These leftover funds represent your discretionary income; the money that is not exactly earmarked to cover your fixed expenses but can be re-appropriated to short and long term goals, or even carried over to the next month. 

Pro Tip: If you think you may want a bit more of a safety net as you get used to the practice of budgeting, perhaps look at working towards your financial goals after two or three months of perfecting your budget and carrying leftover funds to the next month for those ‘just in case’ moments. Alternatively, you can also do a partial allocation to your short/long term goals until you feel comfortable with your cash flow. For example, if you have discretionary income of $300, for the first three months perhaps only apply $150 to your goals. In subsequent months as you feel more comfortable with your plan, you can then increase the amount until you’ve allocated the full $300.  

Having challenges coming up with what kind of financial goals would be realistic for you? Here are some ideas to get you started: 

Short Term Financial Goals:

  • Pay off your credit card debt 

  • Save up for that vacation you’ve been wanting to take 

  • Contribute to your emergency fund

Long Term: 

  • Pay off student debts or mortgage

  • Buy a house or apartment (saving for a down payment)

  • Start building your retirement fund (eg. make regular contributions to your RRSP)


Find the Right Tools to Record Your Spending 

Have you ever made a purchase and tapped your card without looking at the total? This is something I think we have all been guilty of at one time or another. This is why tracking your expenses is so vital to your success when budgeting. This is where a budgeting app, spreadsheet, paper and pen, or an online budgeting tool comes into play. There are many different applications available to fit any lifestyle and budget, so find something that works best for you!

Here are some of my go-to budgeting tools to get you started: 

  • Microsoft Excel: If you want a straightforward budgeting option, check out Excel’s free templates for creating a budget with built in graphics to get you on the right track.

  • Mint: I like this application because it is linked to your bank accounts for real time information and tracking of progress towards goals like retirement.

  • You Need A Budget or Goodbudget: For me to be successful with my budgeting, it needed to be convenient and accessible. These are two apps that I downloaded to see which was most effective for me when out and about to track my spending. 


Budgeting Levelled Up

If you are ready to take your budgeting up a notch and make your expense tracking a bit easier, check out these ideas below: 

  1. Cashless Diet: If you are like me and have trouble keeping track of how much you are spending, what you are spending on and generally where your money goes at the end of the month, try sticking to using credit cards so you can refer to your online statements.

  2. Weekly Check-In: Analyze your spending habits on a weekly basis by collecting your receipts and aligning them with your budget. Determine if you need to reel in your spending or if you can afford to spend a little more. Remember, you don’t need to spend your entire budget - you can also save or carry over from month to month!  

  3. Trial and Error: There are a variety of tools from old school to new school. If a pen and notebook isn’t working for you, change it up and get that app you have been eyeing in the app store!

  4. Automate Your Savings: If you want to streamline your savings plan, look at setting up some automatic monthly transfers to your savings account, retirement account or another account of your choosing.

Review and Revise – The Last Step 

You did it! You have created a budget and you are well on your way to financial victory. One last thing – the first budget outline that you created with your variable and fixed expenses is not set in stone. If there is a category that needs adjusting, a new goal, or if your lifestyle changes all together, your budget is there to help you so be sure to align it with your needs on a month to month basis. Happy budgeting!

Blog post by Georgia Crawshaw. Georgia is a Social Media Coordinator for YWiB Vancouver.