Jessica Lio // Online Editor
It turns out getting good with money is also about treating yourself better… Specifically, your future self.
Budgeting is a critical tool for building up that relationship with your future self and a powerful first step to gain control over your finances. It’s not only about “how much” money to spend or save but also about what you’re willing to do today to make the rest of your life more comfortable.
If budgeting doesn’t sound like your cup of tea or you’re convinced it somehow won’t work for you, consider this: Just as thinking “I’m going to get healthier” while eating hickory sticks every other day didn’t help me achieve my fitness goals in 2017, telling yourself “I need to spend less money,” while clinging onto old habits won’t cut it either. You have to put in the work, no matter how unglamorous and nerdy it may seem. If you stick to it for the next three months, you will start to see results.
First, take a look at everything you spent money on in the past month. A digital app like Mint will aggregate all your bank account balances and transactions, so you can see trends in your spending, sorted into categories such as groceries, entertainment, bars & alcohol, fast food, cafes and restaurants. While these specific categories may not be what you choose to use for budgeting, it’s important to get an accurate, detailed look at exactly what you’ve been spending money on. It’s also helpful to look at your cash flow in the last six months and find your monthly average income and expenses.
Mint has a budgeting feature within the app, however it’s best to manually write or type out your first few budgets so you can adjust it month to month as you try things out and account for special events or changes in your financial situation. If you don’t think your bank and credit card statements accurately reflect your income or spending, try to come up with an estimate.
With your future self in mind, ask yourself:
1. What did I buy last month that I regret (or don’t even remember) spending money on?
2. Did I put any money into savings or pay off as much debt as I would like?
3. Did I put money towards an investment or something that I genuinely care about?
4. How much money did I spend going out? You need to confront this number.
5. What are (three specific things) I can cut from my budget this month?
While this is the time to critically evaluate and confront our harmful habits, keep a positive attitude and remember that is a necessary first step to making the changes you want to see. Once you’ve gotten a good look at these numbers, you can start to layout your actual budget.
1. List all your income, including any miscellaneous items such as tips, commissions or even the odd GST cheque you expect to receive that month.
2. List fixed/scheduled expenses and debt repayments, along with their due dates. Consider treating goals such as buying a car or starting an emergency fund as a scheduled expense that you’re obligated to put money towards.
3. Plan automatic savings for long-term goals such as retirement. What are you saving for and how much do you need to save per month to get there? Even if it’s only $10, set a concrete goal for the amount you need to dedicate here.
4. Determine what’s left for “other” categories, and set weekly goals where possible (i.e. groceries or coffee) to pace yourself.
Keep in mind the big picture – you can try to predict how much you’ll need to spend for upcoming trips or events, but it just doesn’t make sense to set an arbitrary amount to overly specific categories that you may or may not need in any given month. Don’t make drastic cuts or eliminate entire categories of spending either.
At the end of the day, it’s not big-ticket items, but all the small purchases that add up to determine your financial path, so ask yourself: Can I cut down on one coffee each week? Can I survive a month without that Spotify premium membership? How about reducing spending by 15 to 20 per cent in each category per month? Be realistic and leave yourself some buffer room when you’re just starting out.
After the first month, there’s bound to be room for improvement, so embrace the learning process. Hold yourself accountable at the end of the month, but don’t beat yourself up or wallow if you go over budget – just do better next time. Eventually, you can begin assessing whether you have the ability to increase your income, be more aggressive with paying off debt, start planning for that grad trip or simply improving your credit score – but more on these topics later. Keep things simple for now – by the end of the semester, you’ll be budgeting like a pro!