Money Diary: My First Month on a Budget
Nobody wants to be on a budget, but the reality is we have a finite amount of resources–a.k.a. money–and infinite ways to use it.
Budgeting is a way to keep your daily expenditures in check, so when you come to a financial bridge you’d like to cross, you can pay the toll man.
A survey by the Financial Consumer Agency of Canada found that only 46 per cent of Canadians budget. Those who are least likely to budget are single (60 per cent), male (58 per cent) or low income (60 per cent). Of those who did budget, approximately 90 per cent, no matter their socio–economic factors–said they were diligent about not over-spending.
Contrary to popular belief, earning a higher income doesn’t necessarily mean less debt. StatsCan reports that those with incomes of at least $100,000 represented 31 per cent of the population surveyed, but carried 37 per cent of the total debt.
In other words, everyone could do better on a budget.
I’ve been writing about getting your money in line with your values and why we spend impulsively, but I have yet to talk about how to develop a solid and realistic budget.
This month, I’m sharing my own experience with creating and sticking to a budget.
The greatest tool I have used so far is a spending tracker. Three months before I began my budget, I tracked all the money coming in and out of my accounts. This was not only telling of my spending habits, but indicated the areas where I could foresee struggle (dining out). Knowledge is power, and when you know that you will be facing adversity than you can plan how you will overcome it (such as ensuring I make lunch at night).
There are two different spending categories: fixed and variable. Your fixed cost are things like rent, mortgage and internet, where you know how much you will be spend each month. You should also incorporate your savings plan into your fixed costs. It is easier to put away money when it feels as automatic as paying rent and will help you stick to your financial goals.
Your variable costs is everything else like groceries, entertainment, dining out and gym membership. Essentially it is the expenditures you have more control over and hopefully bring you some joy.
A budget takes those variable costs and makes them fixed. You make an agreement with yourself that you won’t spend more than $100 on eating lunches out or will only spend $300 on groceries. By putting a box around these expenditures, you’re forcing yourself to set priorities, think long term and spend mindfully.
When developing your budget, calculate your entire monthly income (use your lowest income month if you are self-employed) and minus your fixed costs. What is left is your discretionary funds, or the money for everything else. This is the time to take a machete to some of those pesky areas that are draining your funds dry. Estimate how much you are willing to spend in each category based on the evidence of your spending habits from previous months.
I broke my variable spending down to eight categories: Groceries, dining out, entertainment, home, shopping, health, transportation and business.
In each category I put a spending target and incorporated an extra ten per cent for unexpected costs. Then I added my fixed costs, including my savings, to my variable costs and, voilà, I had my budget.
Rinse and Repeat
The life of a budgeter is never finished. Every month has different financial strains, so your budget should also be revised monthly.
To cope with the busy and expensive times of year–December for instance–it’s wise to come up with an overarching quarterly or yearly budget where you estimate the money you will need to get through those times. If you put away a little extra each month, you can avoid breaking out the credit card and the pain of debt.
It’s been nearly three weeks of budgeting and I’ve learned that the practice of making a budget is very different from the practice of following it and things add up fast. I’m still within my budget, but as the month dwindles, so does my spending power.
The most important lesson learned is to keep your budget near you at all times because you won’t remember it. I took a photo of my budget, because I’m low tech like that, and at least once a day refer to the budget and cross-reference it with my expenditures. This will keep you in check and will empower you to walk away from unnecessary or impulse purchases.
Another thing of note is that by being aware of my expenditures, and curbing some of those unnecessary ones, I’ve alleviated the guilt feelings I often have around spending money. I didn’t feel bad getting a haircut, or going to out for dinner, because I set aside money for just those things. With a budget you can have those running shoes and eat out–sometimes–too!
Abby Wiseman is a journalist, writer and communications professional based out of Vancouver, BC. She’s written for publications from the Vancouver Sun, Metro Vancouver, and BCBusiness, to being an Associate Producer for CBC Radio One. Follow her on Twitter. She also contributed to the CI Direct Investing blog as a content manager.