Wouldn’t it be nice to freely spend, without having to worry how much money you have remaining in the bank? As nice as that sounds, the reality is that more than one in three Canadians are living paycheque to paycheque. With so many Canadians struggling money-wise, it can be hard to dig yourself out of the vicious cycle of debt in order to achieve financial independence. Budgeting is a great way to help you manage your expenses and track your spending, so that you know where your dollars are going, and areas where you can cut back.
In this blog, I have some tips that you can use in order to stay on top of your budget and more effectively manage your money.
1) Find the right budgeting app for you: One of the hardest parts of budgeting is getting started. In theory, a pen and a piece of paper is more than enough. Personally, I find Excel to be a great tool that you can employ for budget management purposes. However, if you prefer apps that do most of the work for you, you may want to check out Mint, YNAB, Wally, or The Birdy. Each of these apps have different capabilities, so explore them and see what would best meet your needs.
2) Needs vs. wants: What is considered a need or want will differ from person to person. However, it is important you try to define some of your wants and needs, so that you can clearly differentiate between what you absolutely require to survive, and what is a luxury. For instance, you may consider coffee to be a need – but does it need to be a coffee from Starbucks every morning? Coffee may be a need, but Starbucks coffee is a want. Instead, buy coffee from the grocery store which adds up to considerable savings over the course of a year.
3) Review and change your budget: One of the biggest mistakes someone can make with a budget, is the assumption that it is static. That’s not the case, as our expenses are constantly changing, as is how much money you might be bringing in. You may have recently gotten a promotion. Perhaps the car is finally paid off now. Whatever the situation may be, make sure you review your budget and adjust it if you feel like you’re pinching too many pennies and can afford a few more luxuries, or you find yourself spending too much money on items you may not need.
4) Everybody makes mistakes: Sticking to a budget can be hard. In many ways, it can be the same as dieting. Have you ever set a daily limit for your calorie intake, but given into temptation and eaten more than you should? I know I have. What’s important is how you react to your mistakes. Do you think to yourself, “looks like I messed up, so I might as well eat whatever I want for the rest of the week” or did you instead think, “looks like I may have eaten too much today, but that’s okay, I will be much more prudent and do a better job sticking to my diet tomorrow”? It’s important to be forgiving of yourself. You may make a lot of mistakes when starting out, but as you continue budgeting, you will become more disciplined and reduce the frequency with which you make mistakes.
5) Avoid debt or pay it off first: Having an outstanding debt can be very costly in the long run. If possible, try to avoid going into debt whenever you’re able to. If you must take on a debt, or you already owe money, prioritize it. Pay off higher interest debts first (such as credit card balances). The sooner you’re able to pay these off, the easier it will be to stick to your budget.
Need more tips to help you manage your personal finances? Check out some of the great books below: