Creating a budget is the foundation of personal finance. However, you also need a plan to implement your budget. Putting your budget into action will allow you to be able to meet the financial goals you have laid out.
Let’s get in control of your finances so you can spend more time doing the things you love!
Disclaimer: I am not a financial planner or expert. All information in the post is based on my research, opinion and experiences. Any action you take based on the recommendations from this blog is at your discretion.
Meet Jenny. She is a 30-year-old Canadian woman who just put together a budget. She lives alone in a basement suite rental and has a boyfriend named Joe. Here’s her budget. Let’s go through 5 ways how Jenny can implement a budget.
1. Auto transfer into a savings account
In Jenny’s budget, $900 per month is allocated for savings. Since Jenny gets paid bi-weekly, we will divide $900 by 2 to get $450. So for every pay cheque, $450 will go towards her savings. The easiest way to do this is to set up an automatic transfer. Jenny sets it up online to have $450 automatically transferred to her savings account.
This $450 is for her car fund, emergency fund, gifts, taxes, vacation, TFSA and RRSP. Jenny can take it one step further and keep track of how much money is in each of these funds. This process is called giving every dollar a job. Take a look at this article to show you how to do this.
2. Track Spending – for variable expenses
Variable expenses in a budget can be tricky as there is the risk of overspending. “Variable expenses” refers to an expense where the spending amount can fluctuate every month.
So let’s take a look at Jenny’s budget and target the higher cost variable expenses. She has allotted $400 for groceries and $240 for personal spending. If she is not careful, it would be easy for her to spend over $640 for these two expenses and then her budget would not balance.
The best way to keep on top of these 2 expenses is to actively track them. A few methods include using a money app, manually track with a pen and paper or use a spreadsheet.
Jenny decided to use a money app called “Money Manager”. Every time she makes a purchase for food or personal spending she will quickly input the amount into the app. The app will keep a tally of how much she spent in each category for the month.
It is surprisingly effective to track as you spend money. You would think twice about having to buy something that is not necessary (or does not align with your budget). This is not meant to restrict your spending, but to help you stay within your budget so you can continue to work towards your financial goals.
The physical action of actively tracking your expenses makes you pay attention to what you are spending. A great program like “Mint” is helpful to set up a budget and track spending. However, even though it tracks your spending – it’s too automatic and you don’t review your spending in real-time.
Jenny could also either use cash or use her debit card. The amount in the debit account is all that she would be allowed to use for the month (as dictated by her budget).
Keep it simple. Target the categories where you spend the majority of your budget. In Jenny’s case, it is her food and personal spending.
3. Automatic payments
Fixed expenses are the ones that cost the same each month. This would include expenses like rent, mortgage payments, memberships, debt repayment plans and cellphone/cable. The best way to handle these expenses in a budget would be to try to automate as many of these payments as you can.
Jenny can either have these expenses to be debited from her bank account or she can have them automatically charged to her credit card.
Credit cards can be set up to be automatically paid as well. However, I suggest that Jenny takes a few minutes to sit down to review her credit card statements and to manually pay for them. This will allow for her to see if there were errors on the statement and again to review her spending.
4. Simplify
Simplifying finances will definitely make it easier to manage a budget. One strategy is to eliminate unnecessary expenses.
Jenny recently learned that her Prime Amazon membership allows her to stream music using the Amazon Music app! She cancelled her other music subscription which saves her $10/month and it is one less payment.
Jenny also decided to cancel her gym membership and use the treadmill at home to do her workouts. She will invest the saved $60/month and buy a few other workout equipments. Again, it is one less expense and she will save money.
Here is an article that gives your more tips! 10 Ways to Simplify Your Finances
5. Communication
Whether you are part of a family or live alone, your budget affects others. Within a family, a budget needs to be communicated to all members. Share the money goals that have been set. Discuss with everyone what changes will be made to implement a budget. Ask for input and feedback.
In Jenny’s situation, she has a boyfriend. Her money goals and decisions will affect their relationship. She may ask to eat in more and do activities that don’t cost a lot of money (take more walks, have a picnic) and she has a plan to save up money so they can take a nice vacation together.
Once you have your budget set-up and put into action, you don’t need to spend a lot of time managing your finances. That’s the beauty of having your finances organized! You set your goals, create your budget and implement it. You are clear on what you want and you know how to get there with the systems you have put into place for your finances. Go on with your daily routine (with a few new money habits built-in).
Set it and forget it? Well almost. Once in a while, you need to re-visit your budget to make sure you are on track with meeting your financial goals. Things change. Update the budget. Keep going.
To create a budget and to implement a budget are 2 different things. A budget is just a plan. Take the 5 tips discussed and put your budget into action! A well planned and executed budget opens the doors to the life you deserve to live.
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Automating your savings is absolutely one of the smartest things you can do! I love all these tips but especially that one!