1.Track Your Spending
You've probably heard it so many times, but it's true! It is so important to keep track of your spending to see where your money is going. Without these trends, you don't really have an indication of what you're really spending or saving. Tracking itself sounds like a difficult task for sure, but there are so many apps out there that will help make the process a lot easier. I personally like to use You Need A Budget (YNAB). It does have a slight cost, but it's a one time fee for life! You can also start a free trial as well before purchasing, just to feel it out. Another tool that you can use is a spreadsheet, which is what I did before using YNAB. When budgeting be sure to include categories according to your situation (ie. phone bill, water bill, food, gas, entertainment etc...Include items that are expenses but also categories that require you to save. This could include vacation, rainy day, car maintenance etc..). However you decide to track your spending and whatever tools you choose to use, just get it done! Even if it means spending 5 minutes everyday to update your spreadsheet, it's a good habit to build - it will cause less stress, keep you on track and probably make you sleep better. Some apps allow you to scan receipts or to enter in the information through your phone. Get creative!
2. Estimate All Of Your Expenses Ahead of Time
I know you've probably heard this from other people, but estimate all of your expenses well ahead of time. It's the beginning of the year and you can take some time to think about what your weekly, monthly and yearly expenses are. Write down everything from bills, insurance, RSP's, car payments, mortgage, rent, etc. and incorporate this into your budget categories as mentioned above. Once you get into the habit of tracking your spending and expenses, you will be able to estimate your expenses well ahead of time and plan for them accordingly. Don't be too tough on yourself. If you forget to estimate it, just roll with the punches! Sometimes, we can't predict the unexpected.
For example, if your car insurance comes out once a year, you know that you will have time beforehand to save up. Take the total amount of your car insurance ($1200) and divide it by the number of months you have to save (8 months). This amount tells you how much you should be saving each month towards that expense ($150). You can create a specific category in your budget specifically for car insurance and add $150 to that category every month. Or if your mortgage comes out bi-weekly, you know that with every paycheck you must allocate that amount to your mortgage.
3. Estimate What Unexpected Expenses Might Occur For The Year
Make a list of expenses that occur out of nowhere! Car and home maintenance, weddings, birthdays, anniversaries, vacation, an unexpected road trip, clothing splurge and home decor are just a few examples that happen to me. The easiest way for me to save up for these specific expenses is by having a bank account for each major unexpected expense. I then transfer money into each of these accounts every paycheck. Even if it's $5 or $50, every dollar you allocate to those accounts will help you in the long run. For example, start saving for Christmas from now! I did this last year and for once, Christmas didn't break the bank! It might be easier to set this up as an automatic transfer into different bank accounts if this helps. Some examples of what I do include the following.
I'm always busy with social obligations like birthdays, anniversaries, wedding etc....so I have an Occasions account that I always put money into. When that time comes, I have the money to spend rather than saying "Oh here goes another $200..."
I don't know about you, but I get these shopping urges where I want to buy something new for my wardrobe. It could be shoes, a dress, a jacket-- whatever it is, I can afford it by putting money away into a clothing category. Especially if you are in a profession that demands you dress professionally, clothing can be expensive. This is one way to off set this.
I also like to buy new things for the house - who doesn't! It can become an expensive hobby and your spending can get out of hand very fast. Instead, I put money away every pay check and save up for an item I really want. Once I have enough saved, I don't feel guilty about spending!
4. Needs Versus Want
How much you spend really does come down to needs versus wants. Things like food, gas, rent, a mortgage and your bills are things you MUST accommodate for in your budget. If there's a new lipstick you want, but the budget can't accommodate, push it until you get paid next or the next month's budget. Don't give into impulse buying. Think about it for a few days. If it's still on your mind, then buy it. Just be sure to make room for it in your budget. Don't spend any money that you don't have.
5. Put Money Into Random Categories Like a Miscellaneous Category
Always put some money away for random things, like that lotto ticket, a gooey slice of pizza, or your favourite chocolate bar. If you have $5 or $20 put away for miscellaneous items, you won't have to try to scrounge up money or pull from another important category.
6. Save!
Save, save, save! Save whatever amount you can every paycheck, every month. Even if's $100 or $500 every month, it's something. You never know when a rainy day can start showering.
7. Use Credit Cards Like Cash
Easier said than done but don't put something on your credit card that you don't have the money for. Don't risk being charged those extremely high interest rates. It's not worth it. In fact I got into the habit very early on but paying off my credit card as soon as I make a purchase so my balance is always zero. Once you get into the habit you will start to really think about what you put on your credit card and you'll get so used to seeing a zero balance, that any other number won't sit well with you.
8. Get a Credit Card Where You Can Collect Points and Redeem
There are some really good credit card reward programs. I have a credit card that collects travel points. Due to this, I put all of my expenses through my credit card to collect as much points as possible. Since I've had this credit card, I've redeemed close to $2000 in travel in about two years. That's pretty awesome if you ask me! If travel isn't your thing there are a lot of other reward programs in movies, gas, groceries. Get something that you know you will benefit from.
9. Fun Money!
This is something my co-worker mentioned to me last year. Basically, you save $2 a day every day of the year and put it into a bank account. At the end of the year you have all this money to spend on yourself! My husband and I did this last year and loved it! We're definitely going to keep going with it this year! Instead of buying a chocolate bar at the vending machine or an afternoon coffee, save $2 and add it to your fun money account! Saving $2 a day is not a hard thing to commit to, in the grand scheme of things.
10. Give It Some Time
When trying out new financial habits, give it some time. You may not see the benefit in a month or 5 months. It may take a year to fully develop your habit and learn what works and what doesn't work for you. After a year of seriously committing to tracking all of my spending, I think have a better handle on my expenses. Nothing has changed over the year. I still bring home the same amount and I still have the same expenses, but I feel as if I have more money in the bank.
I hope this was helpful! If you would like me to expand on a particular point or do another post on other aspects of budgeting, please let me know below.
Do you have any budgeting tips?
~RANDOMiss
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