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At some point, everyone has succumbed to the impulse to buy a new gadget, a new pair of shoes or some other spur of the moment gift for themselves. These mindless spending habits are so commonplace – so deeply ingrained by advertisements on television, in magazines and on social media – we hardly give them a second thought. Sometimes we spend to buy things we need. But more often, we spend to get things we want.
We spend because it makes us feel good. Because having that new sweater, the latest phone or a beautiful piece of artwork gives us a rush in that moment and makes us forget about stressful events at work, an argument with a spouse or, ironically, our persistent financial problems. We also spend because credit cards and lines of credit make spending easy – we can enjoy what we want now and worry about paying for it later.
There’s absolutely nothing wrong with having fun or occasionally treating yourself. But when frequent impulse purchases start getting in the way of your other financial goals, things can quickly spiral out of control. It can lead to long-term problems which are difficult to recover from; in many cases ending with a consumer proposal or personal bankruptcy.
Knowing where to strike that balance is difficult, but it becomes much easier when you use a budget.
Choose Your Tool
There are countless ways to write your budget and none is necessarily better than the other. What matters is that you find a tool that works and that you will stick with over the long term.
If you prefer writing with paper and pen, great! Find a notebook or ledger that works for you and that you’ll feel proud to carry around with you. If you prefer to use a spreadsheet, that’s awesome too. Build yourself a template with formulas and fillable fields that can be recycled every month to make writing your budget efficient and easy. If you prefer to use your smartphone, that also works. There are several great (and free) budgeting apps which enable you to track your spending conveniently in real time.
Whatever method you choose, stick with it. Refer to your budget at least once every day to ensure your numbers are up to date and so you’re always aware of how much you can or can’t afford to spend.
Choose the Right Time and Space
Making a budget can be stressful – especially if money is tight or you’re working to get out of debt. To make the process as smooth, productive and aligned with your goals as possible, schedule time to work on your budget when you feel calm, clear-headed and well-rested. Avoid distractions or temptations that might distract from your financial goals. Just as it is never a good idea to go grocery shopping on an empty stomach, it is rarely beneficial to write your budget when your subconscious is plagued by a day’s worth of advertising messages or you’re feeling the impulse to spend money. Find what works for you, make a ritual of it and protect that time at all costs.
Creating Your Budget
Revenue – Calculate all expected net revenue for the month. This will include your employment income (how much will be deposited into your account), tax benefits, annuities, rental income and anything else that falls under the “money in” umbrella.
If some of your income is variable (e.g. you’re paid hourly and don’t have a fixed schedule), you’ll need to estimate. Be sure to create extra padding with your expenses in case your income ends up being lower than expected.
Expenses – This includes all the money you plan to spend over the following month. It could range from bills, to shopping and leisure costs. These expenses will be broken out into three categories:
Many people will try to stretch their budget as far as possible by compressing or underestimating their everyday expenses, such as groceries or fuel costs. However, the last thing you want is to reach the last week of the month and realize you can’t afford to feed your family or drive to and from work because you haven’t budgeted enough for groceries or fuel. While you’re trying to reduce your spending, it is also important to be realistic. Instead of cutting one expense by a lot, try instead to reduce each of your variable expenses by a smaller amount.
Balance – Subtract your expenses from your income. This must produce a balance of at least zero. Though you’ll ideally get a positive number. If It does not, you will need to resolve the deficit by either revisiting your expenses and reducing your monthly costs or by revisiting your revenue and identifying how and where any additional income can be generated.
Any surplus (positive balance remaining) represents your savings. If you have not yet, open a separate savings account and deposit these surplus funds into it each month. You will hope to never touch it. But in the event of an unexpected cost, this will be an invaluable lifeline that can save you from taking on more debt.
Reviewing Your Lifestyle
The process of making a budget is really the easy part. Yes, it is time consuming. And yes, it is sometimes stressful. But few people have trouble making the numbers work. The real challenge is sticking to the promise you’ve made to yourself to reduce your spending and adjusting your lifestyle to fit the new parameters. The real challenge is reaching a moment of temptation and resisting the urge to spend on something that wasn’t included in the budget you worked so hard to balance.
The longer you stick with your budget, the more frequently you track your expenses and with every time you stop to question your urge to make a purchase, the easier these new habits will become. The more managing your spending becomes second nature, the closer you will come to achieving your short-and-long-term financial goals.
If you’ve attempted to create a budget and are struggling to make it balance, an MNP Licensed Insolvency Trustee may be able to provide you with the Life-Changing Debt Solution you need. Call us for a free confidential consultation to learn which one might be best for you.
Based out of Montreal,
Martine Lessard is a Licensed Insolvency Trustee and Vice President at MNP LTD. To learn more about how MNP Debt can help, contact our local office at 1.888.932.4115 or toll-free at 310.DEBT (310.3328).
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