By: Terry Bennett (money coach)
You need to view your money for what it is — it’s simply a tool.
You should use your money to maximize your goals and reflect your values. When you start to make your budget — before you begin gathering your costs, expenses, debts and savings and investments — gather your hopes and dreams and what you hold as true and meaningful. If you make a budget based on these things, then sticking to it will be much easier.
Why make a budget?
Well, many of us go through our financial lives passively, never fully thinking about what brings us value. We spend according to what others are doing or what brings us immediate gratification. We might not be sure how much money we’re spending, the interest rates on our savings plans or what interest rates we’re paying on our credit cards or loans.
The other issue is we aren’t typically intentional about our spending, saving, borrowing, giving or earning. In 2019, a study by the Canadian government found only 49% of people had a budget. Yet, we make financial decisions daily without the data to support them.
Needs vs. wants
After your gain awareness of your spending habits, let’s focus on the difference between needs and wants. You’ll need to come up with amounts for each item on your budget. Plus, if you’re faced with a shortfall of money, what considerations should you be thinking about?
What is a need vs. what is a want? A “need” is what is required for survival — to have the necessary tools and resources to stay alive. A “want” is a desire or wish that doesn’t impact your ability to survive.
Why do some people not want to budget?
Here are some misconceptions and common reasons why people don’t budget.
- People don’t know how.
- They think budgets will be restrictive and take away their freedom.
- Budgeting is time consuming.
- They don’t have enough money to budget.
However, the advantages of budgeting clarify why you should.
- Budgets are roadmaps to where you want to go based on your goals.
- They limit overspending.
- They help set your priorities.
- They reduces stress, since you’ll know what you can afford to do.
- They highlight problems so you can be proactive with your money.
Where do you start?
Let’s break it down in five parts. However, it’s worth thinking about what you want to accomplish with your money before we begin. What are your goals? Here are some typical student goals.
- Not having to work so studies are the priority
- Minimizing the amount you need to borrow
- Wanting to understand your financial situation and plan accordingly
- Saving for a future expense like grad school or a global experience
Use your goals to prioritize parts of your budget.
- Get a spreadsheet or app you can use to build your spending plan. Check Macs Money Centre’s budget template on the Resources page. Or, we recommend the Mint or You Need a Budget (YNAB) apps.
- Track your expenses for a month to find out how you’re spending your money.
There are two types of expenses: fixed and variable.
- Fixed costs are those that happen monthly. They’re generally due at the same time each month, and the payment is the same — rent, gym membership, medicines, emergency funds, debt payments, etc.
- Variable costs are subject to your discretion, and they can change regularly or not happen at all in a month — food and household costs, entertainment, clothes, gifts, sports, grooming, laundry, etc.
Note: Emergency funds shouldn’t be an afterthought — keep them in your budget as a fixed expense.
Both areas of costs need to be reviewed and contracts renegotiated if necessary.
Remember to consider all the ways you receive money, including…
- Family
- Scholarships and bursaries
- Part-time jobs and seasonal employment
- Tax refunds and government benefits
- OSAP/SLOC
- Previous savings
This is the tough part. If your expenses exceed your income, then you’ll have to re-evaluate your expenses based on your needs and wants. Try to find freebies and more frugal ways of doing things. Visit Mac’s Money Centre for more money-saving ideas.
Don’t forget to think of ways to bring in more cash if necessary. You can solve your overstretched budget by decreasing expenses, adding revenue or a combination of both.
If you can build a budget based on your goals and priorities, then it will be easier to stick with it. Display your budget in a place that’s hard to ignore. And make sure you include something meaningful that you love to do each month, so there is motivation to keep moving forward.