Rounding it up
A good budget should help you achieve two things: prevent you from going into the red and get you closer to your financial goals.
There are different ways to create a budget. If you like to be super hands-on, the try tracking your expenses in real-time and updating your budget on a daily or weekly basis.
If you don’t want to track every penny, do some planning in advance by splitting your paycheque into buckets for bills, spending, and saving.
After creating your budget, it’s time to build the spending habits that will help you stick to it. Be realistic, and don’t forget to give yourself some wiggle room.
Everyone needs a budget. You know it, we know it. But, after scouring the internet, it’s clear there aren’t that many templates out there that actually work. So, we created our own template that’s easy to fill out and gives you a bird’s-eye view of your finances.
The term “budgeting” can be a bit scary because it conjures up images of 10-tabbed excel spreadsheets designed to make you feel guilty about every dollar you're spending. But it doesn't have to be that way! In fact, the purpose of a budget is not to make you feel bad about the way you spend your money. If you want to keep buying jojoba beard oil, go right ahead! A budget’s job is to help you organize your finances so that you can do more of what you want to do in life and stop having nightmares about never ending credit card statements.
Think of it like Marie Kondo’ing your finances—something you can do today to help quell your money anxieties and you know, spark more joy in your life. So, let's go over the steps to getting your financial life in order and creating a budget that works for you.
What is a budget for?
Put very simply, a budget is meant to do only two things: (A) Ensure you’re not accidentally going into the red, and (B) Align your spending with your values. That’s it!
Maybe your values include being debt-free by age 30, or saving up enough to buy an irresistibly adorable bernedoodle. Creating a budget is a great way to build a lifestyle that allows you to get where you want to go, and a system that keeps you accountable to your plan. If you’re one of those rare humans who are naturally frugal and already adept at saving, creating a budget can reassure you that you’re on the right track.
How can a budget help you?
No matter where you are in life and what you have on the horizon, feelings of financial anxiety can (and often will) creep in. Budgeting is a tool that you can whip out time and time again to bring order to that chaos.
In Shannon Lee Simmons’ highly readable book, Worry Free Money, the financial planner writes that “unless you know what you can afford, everything feels expensive.” Paying attention to how you spend gives you the security and freedom to pursue your goals, guilt free. Even someone who is wealthy can feel uncomfortable spending money if they don’t have a good grasp of their financial picture. Budgeting can give you peace of mind by:
Showing you where your paycheque goes every month
Helping you feel in control of your spending
Killing your debt quicker
Giving you the tools to save up for something specific
Accelerating your general savings
And, just in case you need a tad more convincing, there’s this little nugget from Andrew Hallam’s timeless investment guide, Millionaire Teacher: people who create a budget and automate their savings, save twice as much as people who don't.
When should you build a budget?
In our not-so-humble opinion, we think anytime is a good time to make a budget. There is literally no ‘bad’ time to take stock of what you’re earning, spending, and saving. That said, it’s extra wise to make a budget anytime you have a life change. Why? Because whenever your income or expenses change, your path to your life goals also change. (That promotion you got might mean you can bring your fluffy little bernedoodle home sooner!)
You should probably get reacquainted with your financial picture in the following cases:
You’re going back to school, or have just graduated from school
You have (or are thinking about having) a kid
Your income changes
You buy a house, or your rent significantly changes
You’re saving up for something specific and large (for instance, if you’re hearing wedding bells...)
You’re now sharing expenses with someone - time to budget as a couple
How to find a budgeting strategy that works for you
There are a few different ways to create a budget, which depend on your goals and personal preferences.
Option 1: Hands all the way on
If you like to keep close tabs on every one of your hard-earned dollars, you’ll want a more hands-on approach to budgeting. Try tracking your expenses in real-time and updating your budget on a daily or weekly basis. This will give you a solid birds-eye view of where and how you spend.
Here’s what to do:
First, record the amount of your monthly paycheque after tax deductions. If your income is variable, average your last few months and err on the side of caution. Don’t include your year-end bonus.
What if you don’t know how to make an excel spreadsheet, you ask? We’ve already created a budget template for you! (Fill in your email at the bottom of this article to receive the Ultimate Budget Template).
Second, input your bills and fixed expenses (think rent or mortgage, phone bill, utilities, car payments or insurance, and Netflix), as well as any savings or debt payments you’re currently making regularly.
Third, it’s time to track your variable spending going forward. Try using categories to keep it organized (e.g. groceries, bars, restaurants, shopping, gas, Uber). Check out the “expense tracker” part of our budget template to complete this step.
"No matter where you are in life, feelings of financial anxiety creep in. Budgeting is a tool that you can whip out time and time again to bring order to that chaos."
Tracking this will keep you honest and open your eyes to expenses you didn’t realize were adding up. (Does accidentally spending hundreds of dollars a month on Uber spark joy?) You’ll also be able to see if you’re spending more than you make, which could be why you find that credit card balance just never seems to go down!
Don’t worry, you won’t have to track your expenses line-by-line forever. You’ll learn to feel more in control of your money as you build your budgeting muscle memory (a.k.a new spending habits). Generally this happens after a few months.
If an excel spreadsheet seems like a lot, there are definitely great apps that can help. Some popular ones are YNAB, Mint.com, and, yes, KOHO! KOHO Insights tell you how much you’re spending in each category daily, weekly, and monthly in real-time.
Option 2: Cruise control
If you don’t want to track every penny in real-time, you’ll need to set aside a little time to some organizing work up-front, but can be more hands-off afterwards. You’ll want to do a very thorough audit once a year, and then create a “safe to spend” amount ahead of time. This means splitting your paycheque into buckets for bills, spending, and saving.
Here’s what to do:
First, you have to get your income and your expenses down on the page (just like in the first method, above).
Second, you’ll need to do an audit of where your money has been going, so that you can uncover the areas where you tend to overspend, where you can rein it in, and what you can realistically put towards debt or savings.
Doing an audit is annoying (can someone please create a technology that does it in 3 seconds?!) but is insanely helpful. That’s because 99% of the time we underestimate what we spend on a regular basis. (KOHO insights can help with that!)
Instead of creating your own spreadsheet, you can use the “expense tracker” section of our budget template. We’d recommend tracking that past 2-3 months of expenses to get a realistic view of your expenses. Again, you can use simple categories (e.g. groceries, bars, restaurants, shopping, gas, Uber). Tally your monthly spending in the “expense tracker” section of our budget template and then take the average of the past 2-3 months. Next, put this amount in the “budget” section of our budget template.
Once you’re done, you’ll be able to see where your money has been going! Chances are, you’ll identify some habits that maybe don’t align with your values—nothing wrong with loving clothes, but if you think you’re simply “seasonally updating” your wardrobe when really you’re spending $500 on new fits every month, well, that’s good information!
An easy way to prevent this from happening, is by setting your budget and bucketing your money into three categories - bills, saving, and spending.
On pay day, you’ll want to immediately transfer money for bills and savings. What’s left is your “safe to spend” amount. Of course, you could absolutely transfer that safe-to-spend to your KOHO prepaid Mastercard account.
How to stick to your budget
Now that you’ve done the hard work of creating a budget that works for you, it’s time to build the spending habits that will help you stick to it.
Maybe lunch hour used to mean spending $17 at the Whole Foods Hot Bar and a chance to do some online shopping at your desk. But based on your budget, you want to think of lunchtime differently. Maybe now it’s a walk in the park, call with a friend, and eating that delicious grain bowl you brought from home. Remember, it’s all about balance and doing what works for you personally.
Here are some bonus tips for sticking to your budget:
Be realistic. Start with small changes and don’t be too hard on yourself.
Build a game plan. You won't miraculously eat-out less if you never grocery shop! This means you have to budget money for groceries and time to do the shopping.
Don’t hold onto your budget too tightly. Be prepared to give yourself some wiggle room. After all, you can’t control everything, and the point of using your budget is to feel good about your decisions.
Keep a reasonable cushion of cash in your chequing account for bill payments, so you don’t have to track everything down to the last dollar.
Save up for travel or other big but irregular expenses ahead of time (this is where KOHO Goals come in handy).
Don't forget to reflect on your progress. Even baby steps deserve a fist bump!
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Silvi Woods is a financial planner at Wealthsimple and holds her CFA and CFP designations. Prior to Wealthsimple, she worked as an Investment Analyst for one of Canada’s largest equity mutual funds and as a Financial Planner at KOHO.