If your current budget isn’t working for your savings goals, it might be time to create an essentials-only budget. We walk you through how.
What’s an essentials-only budget?
An essentials-only budget is a budget that focuses on your most important expenses. This type of budgeting is usually only temporary. It can help you reach your financial goals (like paying off debt) while managing your current expenses.
How to determine essential vs. non-essential spending
The easiest way to identify non-essential expenses to cut in your budget is to print off your past two months of bank and credit card statements. It is helpful to use two different coloured highlighters and mark essential expenses one colour and non-essential purchases another colour.
Essential expenses most likely include:
- Food and toiletries (this includes pet needs)
- Utilities (this includes water, hydro, internet, etc.)
- Car expenses
- Debt payments
- Insurances and medical needs
Non-essential expenses might include:
- Subscription services
- Ordering in
- Home decor
If you aren't sure if an item is considered essential or not, ask yourself what works for you. What can you live without? For example, if you have a gym membership and working out is important to you, think about some free or low-cost alternative options, like downloading a free fitness app, to keep you on track and save on the expense of a gym membership.
How to eliminate non-essential budget items
Remember that you aren't ridding your life of non-essential purchases forever. You are making these cuts short-term to help you build up your savings to help you reach your goals or better manage your daily expenses. You might even discover you don't miss some of your non-essential expenses at all. Here are a few ideas on how to cut out the fluff from your budget:
- Pause or cancel all subscription boxes, services, magazines, entertainment streaming, memberships, and recurring app purchases. Look for free alternatives through the library or online instead.
- Remove your financial information from your favorite online stores to prevent mindless shopping. Use an internet extension to block specific stores if the temptation is too great.
- Make do before you spend on new. Look up DIY recipes for household cleaners, beauty products, and home décor. It can be a fun new hobby to get creative.
How to cut back essential expenses
Some expenses you will not be able to cut out of your budget completely, such as car insurance or utilities. With essential expenses, list out which bills are flexible, such as groceries and gasoline, and which expenses are fixed, like your rent or mortgage.
You need to prioritize the fixed expenses and make sure those bills are paid first. You can survive without ordering from your favourite takeout place for a week, but paying your rent or mortgage late can have consequences.
Next, brainstorm creative ways to scale back your flexible essential expenses. Here are a few ideas to save money on essentials:
- Opt for vegetarian-based dishes for two meals a week to save on meat costs
- Downgrade your internet speed if you don’t rely on it for work
- Switch to generic brands for toiletries, pet food, and groceries
The important part about budgeting is making sure you find the right balance that works for you. If you are able to commit to small changes, those savings can really add up. Make sure to check out resources to help you, like Scotiabank’s Money Finder Calculator.
If you have questions about finding a budget that works for you, get in touch with your financial advisor.
Legal Disclaimer: This article is provided for information purposes only. It is not to be relied upon as investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. Information contained in this article, including information relating to interest rates, market conditions, tax rules, and other investment factors are subject to change without notice and The Bank of Nova Scotia is not responsible to update this information. All third party sources are believed to be accurate and reliable as of the date of publication and The Bank of Nova Scotia does not guarantee its accuracy or reliability. Readers should consult their own professional advisor for specific investment and/or tax advice tailored to their needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information.