There’s no doubt that committing to a strict budget can be a daunting task and difficult to commit to considering it carries the stigma that it depletes you of having fun and living life. This certainly is not the case and in fact, budgeting still allows room for living life all whilst redesigning your financial future for the better, however you define it.
For anyone who struggles with finding a way to set money aside for a rainy day and for an emergency fund, implementing a strict budget should be a top priority. In truth, budgeting should be a financial plan that everyone commits to no matter what their circumstance is because preparing for the unpredictable future is always a wise decision. I believe that even if you can only save $20 per week, it’s worth it in the long run. Considering this example, setting aside that $20 once a week can secure $1,040 in savings at the end of one year. This is a significant starting point especially for anyone who doesn’t believe they have the ability to save any money.
So, how exactly do you start?
1. Understand Why You Are Budgeting – What’s Your End Goal
Incorporating a strict, long-term budget into your daily life requires serious commitment because it is easy to fall off the bandwagon every time you are tempted to make an unnecessary purchase, have a night out, or take a vacation that you can’t afford. This is why it’s important that you have an end goal and understand the ‘why’.
Mapping out your budgeting short-term and long-term goals will be your saving grace whenever you are tempted to take a misstep and worse yet, throw in the towel. Like anything else in life, aimlessly seeking an undefined goal without any sort of structure can make you feel stagnant. You won’t recognize incremental progress thus making you feel like you aren’t getting anywhere. Not seeing results (even when you unknowingly reached some already) is one of the most common reasons why people give up on anything that requires effort and dedication.
So what is it you’re looking to achieve?
- You need to start a retirement fund.
- You’re tired of living paycheck to paycheck and ready to become financially stable
- You have debt that needs to be paid down.
- You have a business goal but no financial capital.
- You want to start traveling the world.
- You want to have the ability to cut your work hours down without reducing your living standard.
- You want to save for your child’s education fund.
These are all great starting points because they are specific and focused, therefore, more likely to keep you on track.
2. Calculate Your Net Income vs. Household Expenses
Once you accept the commitment to start budgeting, the next step is to understand where your money is going and how you are spending every penny. To do this, calculate your monthly net income and how much of that goes toward your fixed and variable expenses (rent/mortgage, utilities, groceries, phone, transportation, insurance, etc.). This is a great starting point because it calculates your monthly discretionary income (your money after expenses) and more importantly, it gives you a clear picture of how much money you have to work with after your bills are paid.
Below is a very basic example of what your monthly income vs. expenses might look like. Expenses are broken down between fixed and variable for ease of understanding there will be fluctuations in your expenses as they are not all static amounts. Your total household expenses should be your starting point when calculating your discretionary income which is the leftover income you will be using for your budget.
This task is simple in its calculations but can be difficult when faced with the reality that you have a serious spending problem. Understand that it’s okay because most people don’t recognize how much money they waste every month. Oftentimes, seeing the actual numbers in front of them can be the only required motivation for change.
3. Create a List Containing Needs and Wants
This step is diving a little deeper into your miscellanies spending which can also include groceries despite the fact that they are a variable expense.
Groceries can be tricky because we tend to overspend in this category the most when compared to all other living expenses. A simple trick to remove any unnecessary ‘wants’ from your grocery list is to first, set a reduced budget for your household and stick to the budget! When you have limited funds allocated to your grocery bill, it is almost certain that you will buy only the necessities first to make sure all mouths in your household are being properly and adequately fed. Going into the grocery store without a budget can be financially dangerous and disastrous to our wallets.
From there, create a separate list categorized ‘needs’ and ‘wants’. Add every single thing that you purchase regularly and sporadically that is not a part of your household expenses. You can go through the last 6-12 months of your banking and credit card statements, omit the regular authorized payments for fixed expenses, then write down all other purchases. Consider every purchase and ask yourself; did I really need this or was it a waste of money? Could I have gone without it? It’s very important to take this step seriously because this is where your discretionary income is being spent therefore the less you spend, the more you get to squeeze out of it-which is the whole point.
Following the completion of your list, your purchases going forward should align with the standards you set. For example, if you decided that take-out and random Amazon orders are recognized as needs because you spend far too much money on these items, it would be wise to either limit them or cut them out entirely from your budget for the next while. At least until you reach your goal and are ready to reincorporate them at healthy intervals.
One tip to stay on track is to have this list accessible to you for reference and accountability. Leave a copy on your fridge and in your bedroom. Have a digital copy on your phone as well because most of our purchases are only a few clicks and swipes away. If taken seriously, creating this list can have an immediate significant impact on your spending and budget, so make the best of it.
4. Remove All Shopping Apps From Your Electronic Devices
Shopping apps are undoubtedly convenient considering our hectic and on-the-go lifestyle, but with convenience, comes extremism. When we have constant access to something, we find every spare minute to take a scroll and sell ourselves on why we need things that we didn’t need a few minutes ago.
Deleting shopping apps doesn’t need to be a permanent change, rather, it should be a step taken to challenge your ability to go without them. Remember, being committed to a budget takes commitment to change and dedication to your goal so be prepared to challenge yourself.
5. Create a Holiday Spending Calender
We tend to overspend on our budget particularly during holidays whether that be birthdays, long weekends, or religious celebrations. Prepare yourself by creating a budget calendar for every upcoming holiday and set aside a dollar value. Keep in mind, your extra spending during these periods will create a deficit in your monthly saving so your preparation should include being a little more frugal in the months before and after to compensate.
You have many options when deciding how to narrow in on your holiday spending and which ever one you decide, you should always consider incorporating a spending calender to your strategy.
Option 1. Excel Spreadsheet
I still use excel every day for my household budget which consists of my husband and myself. This works very well especially during holiday seasons because I can play around with the numbers and set a separate budget for festivities and gifts. It is my preferred method for a household because we both have access to the spreadsheets and can monitor live updates as well as partake as a family keeping us both on the same financial page.
Excel can be scary for some users if they haven’t used it before or if they are novice users. This is okay because excel offers a unique variety of ready-to-use budgeting worksheets and all you have to do is have Microsoft Office downloaded to your electronic device, click open excel, and search for a budget template.
As you can see above, the work has already been created and the spreadsheets are ready to go. All you need to do is plug in your numbers and the rest is done for you. I personally use the first option, ‘household budget’, because I prefer a simplistic and user-friendly style which is exactly what you get out of that one.
Option 2. Mint App (Or Any Other Budgeting App You Prefer)
I think of this app as an excel budget spreadsheet on steroids. It requires less work on your part and provides a far more comprehensive analysis of your spending. This is my personal favorite and I use it primarily for my personal budget outside my joint household. It offers user signup to both Canada and America but I’m not sure where else accessibility is extended to. What makes this app exceptional is that it helps you monitor your spending trends, teaches you how to maximize saving, and how to stay on top of your budget.
The best thing about it is, it’s free. It has the capability to connect to your bank accounts so it has full access to your spending habits and trends. Remember, this app is not only beneficial for a short period of time where you are looking to temporarily reshape your budget for holidays, it is also great for long-term use. My recommendation is to use this app or any similar app that you prefer to act as your personal financial analyst.
If you’re ready to incorporate these steps into your life, you’re already on your way. As I mentioned, budgeting will challenge your spending behaviors and commitment to your future. But in time it will become natural and not only get you to your initial goal, but it will also keep you on track for a healthy financial future. Remember, short-term pain for long-term gain always pays off. If I can suggest one more thing, start right now and stop wasting your hard-earned money. Make your money work for you.
Thank you for reading and stay tuned for my unique and ready-to-apply content to help you get on track with your budget and journey to financial wealth – whatever that means to you.