Benefits of Budgeting

When you’re working to pay the bills every month, budgeting can feel like it’s beyond your reach. Who has time to organize and control money when you’re barely making enough to get by? While it seems like budgeting is best when you have extra cash, the opposite is true. Budgeting is for everyone, especially those scrambling for every dollar every month. 

Budgeting will give you control of your finances. It will help you save money when it seems like there is no money to be found. Finally, budgeting won’t limit how much money you can spend. A good budget simply helps track your spending and lets you enjoy your money more.

Budgeting lets you control your money

Without a budget, your money may be controlling you. If you find you routinely run out of money at the end of the month, or if you realize that a day or two delay in a paycheck can cause serious stress in your household, know that a solid budget and emergency fund can help you live with more control and less stress.

One third of all Canadians are blowing through their paycheck every month. That doesn’t leave any room in the budget for emergencies or savings. While you do want to use every dollar you earn purposefully, you don’t want to spend all your money without accounting for it. 

Start with a reckoning

Before you can set a budget, you must know your real numbers. What are you spending every month on food? On clothing? On fun and entertainment? Take a deep breath and dig through your bank statements. Crunch the numbers from your credit card bills. 

Your goal is to track all your money for a month or two to see if your spending is consistent and where every dollar is going. Some expenses will be set, like your car payment and your rent or mortgage. Other expenses will be more fluid, like how much you spend having fun on the weekends. 

Be prepared to be surprised by the numbers when you finally tally them up. It might feel emotional, but really this is just math. Money spent is money spent. Your goal is to see where it went.

Set your priorities

Many Canadians feel like a budget is a punishment. How can you have fun when you’re stuck on a budget every month? But the right budget isn’t constricting. A budget is simply a spending plan. You already know how you’ve been spending your money, so now it’s time to prioritize.

What areas are set in terms of spending? Presumably your living situation and your vehicle require set payments every month. You may have loans that require set payments every month as well. Once you’ve subtracted those funds from your monthly income, look at what’s left. 

That is your money, and you can decide what’s most important when it comes to how you enjoy it. Do you want to spend more on streaming services and technology? Plan for that in your budget. Would you be willing to cut your media down to one streaming service because you’d rather enjoy time out with friends on the weekend? That’s your call. What’s important to keep in mind is that you may have to balance priorities to be sure you can afford what’s most important to you. 

Establish a savings plan

One priority we should all have is a savings plan. Only two thirds of Canadians have emergency savings. A full one third of all Canadians admit they would struggle to come up with $2,000 if an emergency struck. Knowing that you’re stretched thin is stressful enough. Constantly worrying about a potential cash flow crisis is exhausting.

When you’re establishing your budget, you are in the perfect position to set up a savings plan. It’s easy to get overwhelmed by the advice on savings, especially when you’re just getting started. Adults are encouraged to save 10% of their income for retirement. They are supposed to also have 3-6 months of basic living expenses stored away as accessible cash in case of job loss.

Those numbers are well and good, but they aren’t immediately accessible for some families. Instead of worrying about saving thousands, worry about saving hundreds. Start by carving out $100 or $200 per month in your budget and stashing in a savings account. Once you get budgeting under control or get your next raise, you can boost that savings a bit at a time until you’ve bought yourself some peace of mind. 

Stick with your budget

Once you’ve decided how much you want to spend on what every month, the real work of budgeting begins. Remember that budgets aren’t designed to deny. The right budget allows you control over your spending and it’s the right balance of priorities for you. Sticking with a budget is just like forming any other healthy habit, but there are a few ways to help make budgeting successful.

• If you try it and immediately realize you didn’t prioritize correctly, adjust your categories. You are in control of the budget, and you can make changes if you realize that splurging on something is more important than you realized. Just be sure it stays balanced.

• Consider technology to help you be successful. There are numerous apps and software programs that can help you track your spending, stay on top of the numbers and get a visual report on your spending at any time, making it easy to see when you’re spending too much in one area too quickly.

• Automate your saving. If saving is new for you, make it foolproof. Automate your savings by setting up automatic transfers. Some companies allow you to direct deposit into multiple accounts. Another option is an automatic transfer on the day that your paycheck arrives. Your paycheck comes in, your savings go out. Nothing to remember on your end!

• “Hide” your savings. Watching your savings grow is fun, but it can be problematic as you get started with a new habit. Rather than setting up savings in the same account, you look at daily, consider opening a new account with a different bank: one you don’t check every day. Then your savings are out of sight and out of mind until you need them