Set Yourself Up for Financial Success with a Budget

Young woman looking at a computer

Most people know that a budget is important, but setting one up can feel overwhelming, and people may not be aware of the importance of revisiting their budget regularly. But a properly set up budget will help you stay on track financially, ensuring you are prepared for life’s expenses.

“The big rule of budgeting is if you don’t have the money in your budget to pay for something, you don’t buy it,” says Cheryl Jones, Retail Sales and Services Manager at Cambrian. She explains that most of the time, when someone goes over budget, it’s because of their discretionary spending – money spent on eating out, clothing, or entertainment.

Are you looking to create a budget? The first step is to write down everything you spend your money on, including regular expenses such as your rent or mortgage payment, utilities, car payment, food and discretionary spending. “If you don’t know where your money is going, then you can’t budget,” explains Jones. She suggests looking up budget spreadsheets on Google to get yourself started. If you have more money going out than coming in, and you don’t have savings, you will be using credit to pay your expenses, which means you will be paying interest on your budget overage. “A good rule of thumb is, ‘when you are out of budget, you are done’”, says Jones.

Many people are happy to create a simple budget, listing their monthly expenses and discretionary spending, but it is also possible to create a more complex budget. To create a complex budget, you allocate a certain amount of your discretionary money to different categories, such as “entertainment”, and “clothing”, and when you’re out of money in a category, you cannot spend any more of your money on things in that category.

Jones says it is important to build savings into your budget. “Everyone should have two or three months worth of expenses put away for emergencies, so make sure you put money away into an emergency fund,” she says. Retirement savings, or other savings, such as down payment savings should be static in your budget, with automatic transfers set up to transfer funds from your chequing account into your savings accounts.

If you have difficulty budgeting for fluctuating expenses such as your car insurance, Jones suggests looking to see if a payment plan is available to allow you to pay monthly.  “Most of the time the interest rates aren’t too bad, and it keeps it from being a lump sum expense, making it easier for you to budget it in,” she says.

Has it been awhile since you’ve looked at your budget? Jones suggests revisiting your budget annually, and when a major life event occurs, such as marriage. Promotions and changes in living arrangements affect your budgeting, and if you have more money coming in, you should look at increasing your savings contributions.