Finances aren’t something most of us want to dwell on. It’s much easier to put off thinking about how we spend our money. We swipe our credit card, and don’t really look at our statements, or only look at them when we realize there’s a problem.
However, we should be thinking about our finances long before we need to make big investments like buying a house or car, or when we face an unexpected (expensive) emergency.
How to budget for the first time
So where do you start when it comes to taking charge of your finances? We suggest looking at your budget. Budgeting can seem intimidating or a lot of work, but it really doesn’t have to be. It’s never too late to start budgeting. Here are some tips to help head you in the right direction:
Know your cash flow
Before you can get anywhere with your budget, you need to understand how much money you have coming in or out of your bank account. If you have a full-time job with regular hours and a consistent paycheck, this will be easy. Identify how much you make each pay day. If you have an abnormal work schedule and your pay cheques differ, look at the last 3-5 months. Then take the average of your pay cheques.
It’s important to also consider any additional dollars you may get in a month. For example, you may have a side gig or project that brings in extra money. Your cash flow should be representative of all the money that comes into your account consistently each month.
How much money is going out?
Next, you need to take a look at what money is leaving your account each month. These are your fixed expenses that occur each and every month. So no, shopping or your morning Starbuck’s does not count. This should include things like:
- Rent or mortgage payments
- Car payments
- Insurance payments
- Hydro and electricity
- Internet and phone bills
- Gym memberships
- Daycare or childcare expenses
- Tuition or education expenses
- Groceries
Savings
It’s important to look at your savings before you spend all your money on things you don’t need. Savings can go towards a variety of things. For example:
- Buying a house or other large expense like a car
- Retirement (RRSP)
- Your dream vacation
- College or university
- An emergency fund
Even if it’s hard to envision any of these things in the near future for you, good finances is all about thinking ahead. Look at what you have available after you pay for your fixed expenses. Then determine what you can reasonably allocate towards your savings goals. This may be a weekly withdrawal that goes into your savings account, or it may come out of your account at the end of each month. Setting automatic withdrawals ensures you don’t avoid or forget to add dollars towards your savings.
How much do you have left over?
Now ask yourself what you have leftover when you subtract your above fixed expenses and savings from your incoming cash flow. These dollars are what you allocate to other expenses that occur during the month that can be identified as “wants”, not “needs”. Basically, you can live without these things. Some of those “wants” your money could be going towards include:
- Subscription services like Netflix, Amazon Prime, etc.
- Entertainment (movies, going out to the bar, alcohol, etc.)
- Restaurants and dining out
- Shopping
When you first start budgeting, you may not realize where you are spending unnecessary dollars. To help you get a better grasp of where you may be overspending, look at your transactions for the last three months. Group similar transactions together to see where you are overspending and where you could potentially save.
Stick to it
One of the hardest parts of budgeting can be sticking to your budget. Thankfully, there are a ton of tools and apps out there now that make this easy to do with minimal effort. Here are some of our favourites:
Wally is like walking around with a portable expense sheet. You can log expenses for a business trip or your personal day-to-day spending, Wally lets you log your expenses manually or by photographing a receipt. You can also turn on the location service so Wally sees where you are to help you log an expense. If you’re looking to monitor your spending habits, Wally is a good choice.
Spendee is a great app to give you a visual of where you are spending your money. It gives you the option to create different wallets for different expenses and create budgets within those wallets to track your spending. Creating a visual representation makes it simple to see where you can cut back so you can start saving.
Pocket Guard helps you track and lower your bills. It can help you track your vacation, your spending on a new gadget, or paying down debt, You see your spending categorically, uncover opportunities to save, and get notifications about what you have available to spend. This is a fun and motivating way to start saving and to create a good habit for the future.
One of the most popular and reputable budget apps is Mint. Mint works by gathering all your financial information. This includes everything from your bank accounts to investments and bills. It takes your income and your spending patterns and automatically updates everything in real time.
What to do when you’re having trouble saving
As we mentioned above, saving is important. However, lots of people struggle to do so. Why? Here are some of the reasons that could be stopping you:
You’re not keeping track
Maybe you’re avoiding creating a budget. Not developing the habit of keeping track of where your money is goes, means savings probably doesn’t even cross your mind.
You have a “maybe later” mentality
You’re living in the present, which is great, but not so great for your wallet. It can be hard to see past next week, let alone think about decades from now when you will retire. However, the only way you are going to get to those milestones is if you start preparing now.
You’re lifestyle isn’t practical
You may simply be living outside of your means. You might be going out and spending a ton of money, eating out for every meal, shopping whenever you want something, and the list goes on. It’s okay to have fun, but it’s important to remember to live within what you earn.
So what are some tips for those that are having issues with the above? Besides knowing your cash flow and spending habits and having a budget, here are some additional things that can help you:
- Use credit wisely
- Take a close look at your unnecessary expenses and don’t include wants as needs (for example, a morning Starbucks)
- Set your money goals (both short-term and long-term). This will help you stay motivated.
- Meal plan versus always buying food out
- If you’re a homeowner, look at these tips to help you save
- Love to travel? Here are some tips to save money on that too
Other common money mistakes & how to fix them
There are so many little mistakes people make daily when it comes to saving money. All these little things may not seem like much, but they add up quickly. They could be stopping you from saving for the future you want, or living the life you want today.
If you’re a couple, one of the biggest mistakes you could be making is not communicating with your partner about finances. Even if you have separate bank accounts, you probably have joint expenses. Sit down and work out a budget together.
Also be upfront about the debt you are bringing into the relationship and your plan for paying it back. You should also have a discussion about whether or not you are on the same page regarding savings. What savings are you bringing into the relationship and what do you want to be saving for together?
There’s also a ton of ways you could be spending and wasting money that you didn’t even think about. Such as:
- ATM fees
- Bank fees (are there better bank accounts or credit cards that could be rewarding you?)
- Grab & go meals
- Cellphone bills (are you using the features you pay for)
- Travel (are you taking into consideration all the extra charges that go along with it)
- Fitness (do you use your membership? Is there a cheaper way you could be exercising?)
- Subscription services that you hardly use
- Paying full price for items versus catching them on sale
- Paying bills late which triggers interest charges
Learning to make better spending decisions
Last but not least, it’s important to retrain yourself. You need to build healthy habits to make better spending habits. This isn’t going to happen overnight, but being more conscious and aware of what money is coming and going will help you make better decisions.
Credit cards
Some people simply cannot handle credit cards responsibly. They look at them as “free money”. If you are one of these people, we suggest retiring your credit cards (or at least until you have a better hold of your spending). Credit cards make it easy for us to overspend and we can rack up interest when we can’t pay them off on time. If you are often finding yourself unable to pay your credit card balances in-full, it’s time to change over to debit or cash only.
Bills and savings
Being more in control of your monthly unavoidable bills is another great place to start. You may want to build out reminders in your calendar of when each bill is due. Alternatively, you can put aside money in a separate account to ensure you don’t spend this money.
The same goes for savings. When you’ve figured out how much you want to be saving, create a realistic plan and automatically move this money into a safe account that you can’t easily access and spend. This may be a time you need to look at your debt too. You may want to consolidate it into a single payment. In some cases, a quick loan at GoDay could help you avoid unnecessary late interest payments.
Be more conscious
Lastly, you want to ensure you consciously think about every purchase. Every time you tap that card, ask yourself whether it is necessary or just something that is “nice to have”. By being more mindful of your purchases, you may be able to identify habits or patterns. This could be eating out too much, spending too much at the bar, or opting for Ubers rather than walking or taking public transit.
Taking charge of your finances can be incredibly empowering. It can make you feel like you are prepared and ready for whatever life throws at you. Most importantly, you can set yourself up for the life you want to lead versus always having the stress of your finances.
What are some of your biggest tips for saving money?
