47% of Canadians are living paycheck-to-paycheck. Are you one of them?
Reaching financial health and freedom is a major goal of most adults worldwide, but it seems like it’s getting harder and harder just to make ends meet. While budgeting won’t solve your problem, it will make life a bit easier.
We’re here with a quick budget guide that can help you stay on track. Read on for the ultimate guide to budgeting for Canadian households.
First: How Much Do You Make?
Before you start budgeting, it’s important to get an approximate idea of your household income. Determine how much money you make per month (or per week if you want to be more specific with your budget).
If you have multiple streams of income, make sure that you include them. This is going to be the first number in the equation that we use to calculate your budget.
Track Your Expenses
After you know how much money you’re bringing into the household, calculate all of your expenses. We recommend doing this for an entire month (because there are some expenses that you don’t handle weekly), but you’ll then divide those expenses later on.
Start with the things that stay constant, like your bills and subscriptions. While they may change slightly month-to-month, they should be fairly consistent.
Track your spending on essentials, like food and clothing, as well as non-essentials. It might feel tedious, but it’s important that you track every purchase that you make. Many of us have no idea how much money we’re really spending on things because we don’t meticulously track.
You may be shocked at how much money you spend on non-essentials every month.
When you have a dollar amount for your expenses, subtract it from your earnings. This is the remaining money that you can put into investments, savings, or a rainy day fund. Is it enough?
Make a (Written) Plan
Now it’s time to adjust your budget. You’re going to make a written plan to get started. We recommend getting a budgeting binder (more on that later) and making this the first page.
For most people, using the 50/20/30 rule for budgeting is going to be the easiest and most effective option. This means that you spend 50% of your earnings on needs, 30% on wants, and 20% on savings or investments. You can modify this for your goals, but it’s a great place to start if you don’t have a lot of disposable income.
Calculate how that rule would work based on the amount of money that you’re working with. For example, if you have a household income of $50,000 per year, you’d have $25,000 for necessities, $15,000 for wants, and $10,000 for savings or investments.
You’re going to use these numbers to further refine your budget.
Define Your Wants, Needs, and Goals
From that point, start plugging the numbers from your tracking period into your new 50/20/30 budget.
Start with the 50. How much money are you spending on things that you can’t possibly remove (but could potentially get deals on later)? Your bills, food costs, school supply costs, and other necessities go here.
We can bring this number down (more on that later), but this is a good place to start.
Then, the 30% for “fun” things. How much have you been spending on non-essentials, like going out, toys, and fun activities?
When you combine those numbers, do you have 20% leftover for savings and investments? Even if you do, would you like to have more money for that percentage?
Start defining your goals. Where would you like to reduce your spending? Are there any long-term saving goals that you have aside from a general “savings” budget?
If you’re saving for university, a large trip, or a home, this should be alongside your normal “savings” account. These are separate expenditures.
Keep a Budgeting Notebook
As we mentioned before, having a binder for your budget is going to be helpful. A budgeting notebook will help you stay organized. It will be your personal household or family budget guide.
If you don’t want to waste paper writing down your budget every week, you can use dry-erase sheets and a dry-erase marker and re-do it every week. We recommend writing things down by hand even if you also keep track of your budget using your computer or phone.
After each paycheck, divide your money in the notebook for each category. You’ll allocate money to one-quarter of your bills, your groceries and other essentials, and your savings. If you have other large expenses, you’ll divide money into there as well.
For example, let’s say that you brought in $1,000 in a week. $500 would go toward your bills and essentials, $300 would go toward non-essentials, and $200 would go into savings.
Some of that $200 may end up going toward college expenses so you’d divide it accordingly. If you’re planning a trip, that money would come out of the non-essential budget.
Do this every week if you want to be a good budgeter, at least until you get the hang of it.
Maintaining a Budget for Essentials: Tips
It might seem difficult to cut down on spending when you’re spending so much on essentials, but there are a few things that you can do to tighten your budget a bit.
Here are a few ways that you can spend less money on things that you need to buy.
Buy Store-Brand When Possible
When it comes to most essential items, there are store-brand options. Whether you’re shopping online or in a brick-and-mortar store, look for whatever is cheapest. Most of the time, at least when it comes to food, toiletries, and other basics, store-brand is almost identical to the “real thing.”
Even when it comes to clothing, buying basic store-brand items from affordable shops is a good choice.
You should always plan your shopping trip before you go. This is especially important when it comes to grocery shopping.
When you meal plan, not only will you save time on cooking throughout the week, but you’ll also save money. You won’t be picking up random items that may or may not get any use.
With most grocery stores, you can also make a shopping list online. You can see approximately how much money you’re going to be spending and make changes accordingly. If you struggle to resist temptations at the store, you can also order your groceries online.
Always Look for Deals and Discounts
If you’re on a budget, you should never shop for anything before looking for discounts. This is true for essentials, but it’s also something to keep in mind with non-essentials.
When it comes to groceries, look for rewards programs. Many grocery stores offer rewards to help them retain customers. You can usually find digital coupons online for items that you buy often.
If you’re shopping for items online, look for online coupons. If you can’t find any, try to click out of the site and wait to see if they send you a discount code via email.
Don’t be afraid to shop around a bit. If you have to visit multiple shops for your essentials, it might be worthwhile.
Buy Secondhand When Possible
Buying store-brand is a good idea, but when it comes to essentials like clothes and storage items, and even some furniture, try to buy secondhand.
When you buy secondhand, you aren’t just helping your wallet. You’re also helping the environment. You’re not contributing to landfills (which is sometimes unavoidable when you’re buying essentials).
Secondhand items are almost always more affordable than their brand-new counterparts, and you can find things in fantastic condition.
Budgeting Guide: Bonus Ways to Save
So what about saving money on things that aren’t essential?
Take a look at your current subscriptions. How many of them do you actually use? Do you have a streaming service subscription that you haven’t opened in months?
When it comes to a “wants” purchase, take a few days to think about whether or not you actually want to buy it. You’ll avoid buying “on a whim” things that you end up never using.
If you eat outside of your home (or order in) often, make an effort to cut down. While getting a daily coffee from a café won’t break the bank, skipping it and making coffee at home will add a few dollars back into your budget every week.
Use This Quick Budget Guide to Save Money
This budget guide is a great starting point for anyone who’s trying to be better with money. Even if you just stick to the 50/20/30 rule, you’ll be able to keep better track of your finances and maybe even get ahead.
Remember, keep track in a notebook or binder, find ways to save on essentials, and know your exact goals when you start trying to save money. You’ll be on your way to financial freedom.
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