Many people cringe at the sound of hearing the word “budgeting”. They automatically feel that it refers to something “restrictive”, “boring” and “not fun”.
So rather than saying “I need to budget”, I recommend saying “I want to tell my money in advance how I plan on spending it and saving it” . Does that sound better?
To be able to tell your hard-earned money what you plan on doing with it, you can follow these 4 simple principles
1- Give every dollar you earn a specific job
There are 3 ways to use your money – you can either spend it, save it or give it.
Setting up a budget is simply your plan for how you want to allocate your money into one of these categories. In other words, you have to give every dollar you earn one of 3 possible jobs!
The spending “job” can include all fixed expenses (the ones that are the same every month), variable expenses, and debt repayment.
The saving “job” can include saving for an emergency fund, saving for retirement or saving for a specific short-term purpose.
Lastly, the giving “job” is the money you plan on donating or using to support charitable causes you believe in.
To create your 1st budget, you can refer to this page as an example
2- Slice up your pie
So how much should each category eat up from your net income?
Each family is different, and different lifestyles can affect how you allocate your money.
However, there are general guidelines, which can show you if you are within the norm.
The Credit Counselling Society recommends the following guideline
3- Make regular adjustments
Your plan will not be perfect the first time and that’s ok. Making adjustments to your budget are necessary and it’s not a sign that you have failed at budgeting.
You can set up your 1st budget, try it out, see what works and what doesn’t work, then simply re-allocate your money differently to see if things improve.
Adjustments are also necessary when you expect a change in your income (maternity leave, sick leave,…) or a change in your regular expenses (medical expenses, unexpected repairs,..)
4- Use your preferred tracking tool
It’s crucial to find out which tracking tool works best for you and your lifestyle. This will increase your chances of sticking with it.
Personally, I have been tracking my spending for the past 15 years using Excel spreadsheets that I have customized over the years. And they’re still work-in-progress, as I remove some categories, add categories and refine it to fit my spending habits. Most importantly, I keep improving my tracking system so it gives me the information I need in order to make financial decisions.
Some people prefer more automated tracking systems such as Mint.com , or YNAB. Others prefer a system they can access on the go from their smartphone, such as the app iSpending.
The system you choose is not relevant, as long as it works for your lifestyle and you actually use it!
Budgeting does not have to feel tedious and boring. It is important to perceive it as a tool to help you achieve financial freedom, rather than hindering your ability to have fun.
Let me know what fun budgeting tips you have found !