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How to set a budget you’ll actually use

Budgets. A word many people dread because of its association with restrictions, hassle, and headaches. Budgets are designed to make your life easier and keep you on track to reaching your financial goals—whether that’s retirement, a big trip or even a fancy dinner party. You can budget for anything. If you find yourself getting caught in frequent bad money habits like overspending on items you don’t need, treating yourself…one too many times…or neglecting any debt repayments because of said overspending, a budget will help you create a plan to help prioritize your spending. Budgeting doesn’t need to be overly complicated either. Here are steps to put together a budget you’ll actually use.

Start with some fact gathering

First, you’ll want to know your basics. What is your net (take-home) income? Next, pull together all of your receipts and other intel from a number of places. This will include your essential expenses – fixed bills like debt repayment, car payments, insurance and any other monthly costs that remain the same. You’ll also want to determine any essential expenses that change slightly each month – these are things like your phone bill, utilities, gas, medication, shoes, clothing, and groceries. Finally, how much are you planning to save every month? If you have a retirement plan or savings goal, how much do you need to put away each month to reach your goals?

Don’t forget about the other stuff too

…In other words, the things we might not want to admit we’re spending money on (but probably are). These are also known as non-essentials.

Be sure to build in a reasonable amount for things, which include eating out, entertainment, and hobbies. Remember that it’s still okay to treat yourself from time to time. Just don’t go overboard – it’s no longer a treat if it becomes a daily or even bi-weekly thing.

And now, the missing pieces

Now, you’ll need to account for other items you may have left out. Things like car maintenance, gifts, vacations, holiday spending, etc. For any expenses that aren’t monthly (like car insurance if you pay it all in one go), you can figure out the monthly cost by dividing the annual total by twelve. Not sure where you’ve placed that pesky bill? Check out your online banking profile or credit card statement to track down and log important info.

Time to compile it all together

Next, you can open up Excel (or an Excel equivalent like Google Sheets) and start dropping in your numbers. The total cash in should exceed the total cash out. If not, you’ll need to make some adjustments. It might be skipping your daily latte, taking your lunch with you to work rather than eating out every day or cutting back on your cable package.

Need a hand getting started? Check out our free budgeting calculator.  And if you’re a Coast Capital member, you can calculate your budget right in online banking with the Money Manager, which makes it even easier to track your spending against your budget.

Try out the 50:20:30 rule

The 50:20:30 Rule is a guideline that can help you keep your spending in check with your savings goals. Here’s how it works:

  • 50% of your income should go to essentials. In general, this includes housing, food, transportation costs and utility bills.
  • 20% of your income goes to savings. This includes savings plans, debt payments, and rainy-day funds. Keep in mind that this is a rule of thumb, and should be considered your ‘get ahead’ category, so if you can contribute more, you’ll be well on your way to blasting through your savings goals. Retirement may seem like a ways off when you’re in your twenties, but keep in mind it’s always better to start early thanks to the benefits of compound interest.
  • The remaining 30% can then be allocated to ‘personal’. This is comprised of the unnecessary expenses that allow you to live your current lifestyle. Now, you might think your monthly mani-pedi is essential, but to the average bystander, you might be able to set up your own DIY spa with the same effects and pocket the savings.

It’s totally okay to adjust the numbers slightly, but staying close to the core concept of this system will guarantee you to gain some financial ground, rather than lose it.

Final tips

  • Don’t set it and forget it. It’s super important to remember that this is a document that you should be revisiting (and readjusting) on a regular basis, and not something that you can just drop into your computer’s recycling bin after a week or two. Just like a New Year’s resolution, it’s important to stay on the wagon in order to see results.
  • Adjust your categories based on reality. Life’s full of surprises (some good, some bad). Food gets more expensive, gas prices rise and fall, and rent can get increased. On the other (better) hand, you may also get a raise or perhaps have an extra flow of income coming in that you’ll want to add in to your budget. It’s best to be aware of your current situation – and adapt to it.
  • Be honest with yourself. It’s hard to see the cold hard truth on paper, but being blind and shoving your head in the sand isn’t going to help move the needle on your financial health.
  • Ask for help. That what financial advisors are here for. Book an appointment for a Money Chat if you want to crunch the numbers with an expert.

Still can’t wrap your head around what your ‘bigger picture’ looks like? Does the thought of a longer-term financial plan give you a head rush? We can help.

Ready to improve your financial well-being?

Our Investment Team can help you figure out the best financial plan for your goals. Call us at 1.888.517.7000 Mon-Fri, 8am-8pm; Sat, 8am-5pm.

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