Did you know that around 29% of all Canadians have never bothered to start a budget for their household?
If you’re often caught up in financial worries and don’t know what to do, it is time to start a budget. And you can make the task simple using a budget planner.
Creating a budget planner is as simple as writing down a list of how much you spend every month. Alternatively, you can use a specially designed online budget planner or budget template. They’re easy to use and convenient.
Once you have a budget up and running, how do you know if you’re making any progress with it? Keep reading to learn how to budget like a pro.
Pay Attention to the 50/30/20 Rule
The 50/30/20 rule is perhaps the single most important financial rule in the world of budgeting. You can’t have a realistic budget if you don’t follow this rule to some degree. But what makes this rule so unique, you might ask?
The Rule Explained
It all depends on how you divide your income and what you do with it. For example, the 50/30/20 rule divides your income into needs, wants, and savings. Around 50% of your income is for needs such as your rent or vehicle.
You can’t live without these items, so it only makes sense that the most significant chunk of your income should go towards them. After paying for those needs, 30% of your income should go towards wants. You may have several different things you want, such as a weekly manicure, dessert at a restaurant, or a new pair of shoes.
All these things are luxuries; therefore, they should not be included in your necessities. Because you can live without them, you can also cut down on them if you want to save some extra money. Finally, the last 20% of your income goes towards repaying whatever debt you have and savings.
Changing the Rule
Most budget planning models follow some version of the 50/30/20 rule. Of course, you don’t have to follow this rule strictly. If you want, you can change some of the ratios to fit your lifestyle better. However, remember that the goal is to save money by budgeting, so you shouldn’t mess with the formula too much.
For example, suppose you don’t spend a lot of money on things you want every month. In this case, the “wants” section of your budget doesn’t need to be 30%. You can shrink it and divert the extra money towards savings or needs instead.
The less you spend on wants, the more money you will have to save and enjoy later on. You will also have less debt by doing this as well.
Track Your Spending
A budget book planner will only get you so far. At a certain point, you will need to exercise your brain and figure out how much you’re spending while you’re on the go.
Small Purchases Add Up Fast
This is important because many people don’t keep track of their spending at all, or they may only keep track of a portion of what they are actually spending.
For example, suppose you go to a restaurant for a nice dinner with friends. You plan out how much you’ll spend on your appetizer, main, and drink. However, near the end of dinner, you decide to order a small dessert.
Because this dessert is so tiny, it only costs a few extra dollars. And because it’s only a few extra dollars, you figure there’s no point in including it in your monthly spending budget. However, this would be a mistake, especially in the long run.
If you fail to count these small costs, you’ll find that they’ll start to add up over time. Eventually, all those small costs will result in hundreds of dollars you didn’t account for. Minor costs are often the reason why budgets don’t work out for many people.
If you don’t keep track of everything you spend, even the small things, you’ll start to wonder why your budget isn’t working as well as you expected it to. On the other hand, if you do keep track of everything, you’ll find that budgeting becomes more straightforward than you ever imagined.
Analyze Your Spending Over Time
You’ll also have the opportunity to look back on the things you’ve spent and see what you can cut out in the future. For example, if you’re trying to save money, you might skip desserts in the future. If you’re on a very tight budget, you might temporarily stop eating at restaurants or ordering takeaway meals.
Many people find that they can save a significant amount of money eating at home rather than going out to eat. It is best to segregate your budget by the month. That way, you won’t get overwhelmed by how much you spend, and you can better track what you spend every month.
At the end of every month, reflecting on what you’ve spent and what has cost you the most is a good idea.
For example, your rent or mortgage will likely take the most significant chunk out of your income—and you can’t do much to save there. So you should always have enough money to pay this cost.
Another high cost will be the gas for your car and perhaps a car payment. But, again, you can’t do much to save here unless you use public transportation or ride a bicycle.
Then, there are other budget line items that are much easier to cut back on.
For example, if you buy new clothes every month or get a manicure every week, there’s a good chance you can cut these out of your budget. You’ll save a lot of money by doing this, perhaps hundreds of dollars every month!
Your Emergency Fund and Retirement
No budgeting planner would be complete without a small section dedicated to your emergency and retirement funds. Of course, it’s best to fuel your emergency fund before your retirement fund since the need for an emergency fund is immediate and necessary.
What Is an Emergency Fund?
An emergency fund is simply a bit of money set aside to cover unexpected costs.
For example, suppose your car breaks down on your way to work. It will cost you quite a lot of money to bring your vehicle to a mechanic to see what’s wrong and then fix the problem. If you don’t have an emergency fund, the cost of repairing your car might destroy your finances.
Of course, this is not something anyone wants to deal with. But if you have an emergency fund, an unexpected problem like a car repair wouldn’t be much of an issue.
Your emergency fund should not be too large or too small.
Instead, it should be enough to cover all your outgoings for about 3 to 6 months. That way, if you suddenly lose your job or some other serious life event occurs, you’ll have several months’ worth of accessible money to support you until you get back on your feet.
How to Save for Your Retirement
Besides your emergency fund, you also need to save for retirement.
Your retirement fund is critical because, after all, you don’t want to end up working well into your old age. Instead, you’ll want to relax and enjoy life once it’s time to retire, and you won’t want to worry about how much money you need to have saved up.
You should set aside a certain amount of money for your retirement every month. It doesn’t need to be a tremendous amount of money, especially if you’re still young. However, as you get older, it’s a good idea to start contributing more and more of your salary to your retirement fund.
That way, you can be sure that by the time you retire, you’ll have plenty of money to see you safely through your golden years.
What You Need to Know About Creating a Budget Planner
If you struggle to keep your finances in order, starting a budget planner is the best—and quickest—way to fix this problem. A budget planner can help you keep track of your finances in various ways.
Sticking to the 50/30/20 rule can help you save money every month. Keeping track of what you spend, even the small things, is also vital. Creating an emergency fund and saving for retirement ensures life never gets you down.
Contact us today to learn more about getting (and staying) in great financial shape.
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