A journey of a thousand miles begins with one step, and the journey to financial freedom is no different. When it comes to your personal finances, the first step is to make a really good budget. Without a budget, you will have no idea how much money is coming in or going out, and before long, you’ll find yourself in financial difficulty.
But creating a budget is one thing; following it is another story! Check out our 10 budgeting tips to help you stay on track.
1. Open multiple bank accounts.
It might sound counter-intuitive, but having multiple bank accounts can make it easier to organize your money. Think about having one account for income and everyday expenses, one for bills, one for savings and one for occasional expenses like gifts, car maintenance, etc. By having a bank account for each, you can ensure that when the time comes to pay your bills, the money will be there.
Be careful when choosing bank accounts, as many banks can charge you a monthly fee. Try and find a free or low-fee account. Many banks will allow you to open multiple accounts at no extra charge.
2. Automate your finances.
Automating your finances ensures that all of your money will be allocated to the appropriate account/bill/expense before you have the chance to spend it. If you have multiple bank accounts to organize your finances, it will be easier to automate everything. Tally up all your bills, then set up an automated bank transfer for the total amount each month, ideally right after payday. Transfer the money from your everyday account to your bills account, and voila, when your bill comes due, you have the ability to pay it. Bonus points if you’ve automated the bill payment so you don’t risk ever missing a payment!
Now do the same for your savings and occasional expenses. Set up an auto-transfer for the allocated amount each month so that the money is there in the accounts when you need it. Whatever money is left over in your income and everyday expenses account is what you have to spend until the next payday.
3. Pay yourself first.
When people often budget, they look at all of their bills and expenses and quickly realize there’s no money left over to put towards savings. This is not good. You should be putting 20% of your income away each month. If you don’t have enough, then you need to cut back expenses, or make more money.By automating your savings and putting it aside automatically after each payday, you’ll ensure you pay yourself first and save for the future before spending your money on other things.
4. Grow your savings.
It’s not enough to simply put your money into a savings account and wait. You need to invest your savings into investments that will bring you returns, or your savings will lose value because of inflation. Talk to your financial planner about the right options for you.
5. Plan variable expenses like meals, travel and entertainment.
It’s often the variable expenses that cause us to overindulge. Plan these expenses ahead. Make sure you factor in eating out and entertainment into your budget so that you actually have money when you go out and do things. Oftentimes we lie to ourselves when budgeting in order to make ends meet. We say that we’ll only spend $50 on entertainment a month, but in reality, $50 doesn’t go very far and we end up spending $200. If you don’t factor these expenses into your budget, you’ll set yourself up for failure.
Apart from your regular savings account, put money aside for planned large expenses that could wipe out your savings, such as a flat-screen tv or holiday.
6. Be a savvy shopper.
There are a number of websites like Groupon, LivingSocial, WagJag and Buytopia that offer great discounts on everything from travel to events and entertainment to shopping and spas. Don’t forget to also scour Kijiji and Varage Sale for second-hand goods. Oftentimes you can find some great deals on barely used items that are usually expensive, such as furniture or clothing.
7. Compare prices online.
When shopping for various items, take the time to compare prices online. Oftentimes it pays to take the time to get multiple quotes, particularly when shopping for utilities, mortgages, insurance and other services.
8. Adjust as income adjusts.
If your income is variable or commission-based, adjust your spending accordingly. Cut your spending when you earn less and when income is high, put more money towards debts or savings.If you get a new job or a raise, make sure you adjust your budget to accommodate the increase in income. Make sure you don’t simply increase your expenses – you should be using this extra income to pay down debt faster or put more towards your savings. Try and live like you were on your previous income so you won’t overspend.
9. Use online budgeting tools.
Rather than scribble on bits of paper that you will probably lose, do your budgeting online. There are several fantastic budgeting sites and apps where you can keep track of your spending from one pay period to the next.
10. Be accountable.
Finally, be accountable. While finances are personal, having a partner walk with you and keep you financially on track is very helpful. This is something that Credit Counselling Services of Atlantic Canada can help you with. If you’re struggling to create a budget that works, or if you’re in debt and don’t know how to get out of it, contact us today.