Budgeting. Maybe you're great at it. Or maybe it's something you've tried to avoid in favour of financial spontaneity. Regardless of your budgeting track record, these days people are increasingly realizing they need to up their budgeting game as they navigate inflation.
The good news is that doing a full budget overhaul is easier than it sounds and doesn't mean you'll have to cut out all of the fun things you spend your money on. It just means taking a long look at where your money is going and finding ways to cut back in some areas so you can prioritize your spending in others. Whether you're a budgeting expert or a money tracking newbie, creating an inflation-ready spending plan will help you better meet your current and future needs.
So, what's the key to sustainable spending? Craft a thoughtful monthly budget that's realistic about your needs, personal spending habits, savings goals, and financial challenges (such as credit card debt or childcare expenses for when you go out). But like with any budget, you should also include room for some much-needed fun.
Here are some tips for creating a budget that will work for your needs.
You can't make a realistic budget if you don't know how much money you have available or how much you should really be spending in order to meet your financial goals. To figure it out, you'll have to start by calculating your net income and subtracting your non-negotiable expenses to find out how much money is left over. Grab a pen and pad of paper and add up all of your take-home pay and other sources of income, such as side hustles or investments. Next go through your bills and estimate the average monthly payment for every non-negotiable expense such as credit card and car payments, your mortgage, rent, student debt repayments, basic living expenses, such as food, transportation and utilities, and other budget essentials.
Next, add up any other monthly expenses that aren't crucial to staying afloat, but that you'd rather keep, such as gym memberships, newspaper subscriptions, cable or streaming services, and more. You can also use a budgeting calculator to make this exercise easier.
Estimating the amount of money you have left over after you've paid all of your monthly bills (your needs and wants) is the baseline first step for every financial planning exercise, no matter what budgeting strategy you pursue. But you're not done. You also need to know what nonessential purchases are eating up your monthly income and cut back where possible.
We can help make budgeting easy for you. If you are an eligible Scotiabank customer, you can get a quick, clear update on your cashflow by using our new tool, Scotia Smart Money by Advice+.* This tool on your Scotia mobile app, under the “My Advice+” tab, has a lot of great features, including letting you have a full picture of the money coming in and out of your accounts each month. It also shows you how much you are spending monthly by category, including entertainment, groceries, household expenses, and more.
To personalize your budget, you'll need to audit your actual spending. Although combing through your bank statements and spending history can be dull and time consuming, especially if you do it manually, it's necessary. Don't skip it or put it off so long you never do it; it's a crucial component to making a realistic budget that works for you.
By using Scotia Smart Money, you can have a full view of your monthly spending and cashflow to understand where your money is going. Where do you normally spend the most money? Look for patterns in the numbers. Do you see any big anomalies, such as more of your cash going to takeout than you expected or a surprising sum for your online spending? Write that down: it will help give you the information you need to know just how much wiggle room you have in your new budget to make adjustments.
Scotia Smart Money can help you here: with personalized insights and real-time recommendations that are based on your spending habits, you’ll be able to have all of the information that you need to stay on track.
What kind of insights will you be getting? You find out things like if you’re reaching your credit limit, when your paycheque is deposited into your account and what could be a good budget for you based on your spending history.
While you might have found some obvious areas of overspending during your auditing exercise, don't stop there. With a critical eye on your spending habits, you may be able to find other opportunities to cut expenses. If you do, you'll end up with more money for the fun stuff like dining out, travelling, or going to the movies.
Begin by having a second look at your everyday purchases. Do you have any recurring subscriptions you don't really use? Go ahead and cut. You can always add them back into your budget later if you change your mind. Similarly, are you spending too much on convenience items, such as precut vegetables or takeout? True, these can save you precious time and hassle, so it's not always a wasted expense, but if it's not saving you enough time to make giving up other fun activities worth it—or if you're just buying it out of habit—then consider cutting down on those purchases for now. With Scotia Smart Money, you will get insights like reminders of when a subscription fee is charged and if that amount changes.
You've gathered your information, mined your expenses, and have decided what you must spend money on, what you want to spend money on and how much money you have to do all that. Now it's time for the fun stuff: making your monthly budget. You can easily create, track and manage your budgets with Scotia Smart Money, setting how much you want to spend monthly for different spending categories like travel and dining.
There are lots of different budgeting strategies out there, so don't feel like you need to stick with just one. Instead, think about your personal spending habits and what you think will work best for you. If you prefer to have a framework to start with, consider trying out the 50-30-20 rule. This is a common budgeting plan in which savers put 50% of their income toward essentials, such as home and living expenses, 30% toward the expenses they'd like but can live without, and 20% toward savings and debt repayment. Whatever you do, don't forget to give yourself crucial financial breathing room and set aside enough money for unexpected expenses, such as home or car repairs or health-related expenses that aren't covered by your territory or province. (Trust us: they'll happen.) Recommendations for a good emergency fund vary. But a smart rule-of-thumb is to make sure you have set aside at least enough additional cash to stay above water for three to six months—or even more if possible—if you lose all of your income overnight. Don't neglect your other savings accounts either. Retirement may feel like it's a long way off, but it's not. So, make sure you're also contributing regularly to your retirement accounts and not skimping on your future self. Savings contributions should always be a non-negotiable component to your budget. Also take a look at your bank accounts and make sure they are the right fit for your savings goals. Choose chequing and savings accounts that offer you benefits that will help you, like in the Scotiabank Ultimate and Preferred Packages, which offer perks when you bundle your accounts like fee waivers, cash incentives and bonus interest rates.
If your employer offers to match a certain percentage of your retirement contributions, for example, that's free money that you will almost certainly want to use later. Take your employer up on the offer and think about how much of a contribution you can afford when you're creating your monthly budget. If you don't have a retirement account set up—or if you aren't yet saving up for other long-term expenses, such as your kids' education—set up an appointment with an advisor to talk about your options. Depending on your situation, putting pre-tax income into a Registered Retirement Savings Plan (RRSP), a Registered Education Savings Plan (RESP) or a different savings vehicle can save you a lot of money over time.
Sticking to a budget is hard — really hard — no matter what year it is or what stressors are making life feel heavy. But after a year of lockdowns and COVID-19 anxiety, it is going take huge amounts of determination to not veer from your budgeting plan. So, you're probably going to mess up sometimes and overspend. And that's okay! Don't beat yourself up.
Forces outside your control may also substantially affect your finances and your ability to meet your long and short-term goals. So, don't blame yourself if a financial downturn or a surprise layoff has suddenly caused your fun budget to shrink. You've dealt with a lot this year and you're already on the right track if you're reading and thinking about your personal finances.
Just continue to move forward with a learner's mindset and keep at it. As long as you do your best and get back up each time you stumble with your spending, then you are on the right track. You're making important progress toward meeting your short and long-term goals and are inching ever closer to success.
Scotia Smart Money by Advice+ can help you along the way by showing you where exactly you are with your budgets – if you are above or below your targets. It also tracks how you are doing month by month so you can see your progress.