Create a Budget You Can Stick to.
Uh oh – there’s that dreaded credit card statement in the mail again. You are certain that someone must have stolen your credit card because you didn’t spend a lot of money this month. When reviewing your credit card statement, you often think to yourself “where the heck is all of this money going?”.
Sound familiar? If so, it may be time to create a budget.
Creating a budget doesn’t have to be a tedious chore, you just need to have all the right materials. But before you start jotting down all your variable and fixed expenses, I want you to first write down the following:
Your goal. Why are you building a budget?
It could be for numerous things such as:
- Paying off debt
- Saving for a house, wedding, new baby
- Paying bills on time
- Keeping track of your monthly spending
Timeline to reach that goal
The reason you need a goal is so that you can actually track your progress. When you have a target date to pay off debt or save for a house, you have a motive to stick to your budget and at the end of every month you can track how you’re doing.
Lets take paying off debt as an example. If you have $10,000 in debt and your goal is to have it paid off in 1 year, you will need to make monthly payments of $833 (not including interest). At the end of each month, you can check your progress and make sure that $1000 did indeed go towards debt.
Seems simple, right? It is, but if you’re not realistic with your goal and timeline, its very easy to get off track. Some may pay the minimum amount on a credit card one month because they need that money to put towards something else. Do that for a couple of months and it can lead to many more months in debt.
Now that you have your goal and target date, lets create a budget that we can stick to.
Step 1: Know your variable and fixed expenses
A variable expense is an amount that doesn’t often stay the same. Examples of variable costs are: house gas, hydro, entertainment, and groceries. A good tip to keep in mind is to set a maximum amount when determining what your costs are. If you set your groceries for $150/week, make sure that it is your maximum amount.
A fixed expense is a locked amount that doesn’t change. Examples of fixed expenses are: mortgage/rent, car payment, and car/home insurance. Something to remember is that just because something is a fixed rate doesn’t mean you can’t negotiate the amount from time to time.
I once called around to get quotes on my car and home insurance and got a rate that was 50% lower than what I was currently paying. It’s always good to sit down one day and dedicate some time to call around and negotiate the rates you are currently locked into.
Step 2: Set up your dates
Not everyone works well on a monthly budget. I like to do a weekly budget since I am paid weekly. Depending on your pay periods, I would work around that. Next, I set up my dates for each bill. This is where it can get a bit tricky. If you pay all your bills as they come in, it can get a bit overwhelming because you may not be able to easily track your goal when you don’t know how much money is really left over.
I recommend setting a date for each bill to be paid. It makes it easier to manage your money on each pay day. Here is an example of how someone may want to organize their billing dates on a weekly basis.
- Week 1: Mortgage/Rent, Property Taxes, Groceries, Car Gas, Monthly Entertainment
- Week 2: Cable/Internet/Home Phone, House Gas, Hydro, Debt, Car Gas, Groceries
- Week 3: Mortgage/Rent, Property Taxes, Groceries, Car Gas
- Week 4: Car Insurance, Cell Phone, Debt, Savings, Groceries, Clothing
*This applies to mortgages being paid on a bi-weekly basis. If you pay your mortgage on a monthly/weekly basis, please adjust accordingly.
Step 3: Build the budget
I like to build a budget with Microsoft Excel. It’s easy to use and does all the calculations for me. I also use the free budget template download from Cassie. I download the budget template into Excel and make some modifications for my household. Once you figure out how you would like to set up your budgeting system (weekly, monthly), plan in advance.
If you’re doing a weekly budget, build it until you reach your goal. At the end of each budgeting week, look back and check to make sure that you’re staying on track to reach your target date.
Step 4: Be realistic
It’s important to set expectations that you can meet. If you’re spending 60% on housing costs to be able to afford that dream house, you probably won’t be able to sustain it. Also, thinking that $0 will be going to entertainment is a recipe for disaster. You must allow for some fun in your life or you will go crazy.
Some banks have financial programs you can use to determine how much of your income is actually going to each category. Here is one by RBC called My Finance Tracker.
Step 5: Keep your budget easily accessible
Once you have created your budget, print it off and put it in a place that you can see it on a regular basis. If it’s on your computer, then you probably won’t update it every time you spend money, which is not good.
I recommend putting your budget in a binder inside a sheet protector so you can easily write over it with a washable marker each week. Keep this binder in a high-traffic area of your home.
Keeping your budget system simple is key, and remember, it does take some time getting yourself acquainted to this new process. It’s worth it, though – I promise.
Do you have a budget? Do you have any budgeting tips?