Last year, as a student in college, I was an incredibly conservative spender and just could not bring myself to spend money on even a simple cup of coffee. I attribute this not just to the frugal lifestyle of most students, but also to the fact that since I wasn’t earning an income, the dollar conversion from rupees made everything seem extravagant.
Although I believe that my principles and conservative spending habits stayed with me, I found that once I was a full-time employee the amount of one pay cheque was slipping away a lot quicker than the 3 months it would have otherwise lasted me while in college. Fortunately, just one month later, my life changed after meeting an extremely friendly, kind and knowledgeable financial advisor that got me onto the path of budgeting, saving and investing.
Together we created a realistic budget that was specifically designed to suit me and although my income has since remained the same I have never been more financially confident. This confidence stems from having a balanced budget, i.e. when your expenses and savings are equal to your income.
Since it’s the start of a new year, I want to share 6 simple steps that made me more comfortable with budgeting that, hopefully, you’ll find useful, too.
Step 1: Assessing your income and expenses
Assessing your income is the easy part, but I really struggled with keeping track of my expenses. The easiest way to do this was to track expenses from monthly transaction histories from all your debit and credit cards.
Step 2: Budget expenses
A good way to start budgeting your expenses is to group your expenses from each month by easily identifiable categories. For example: rent, hydro, water, phone, coffee, transportation, etc. This part is slightly tedious but extremely important. A huge shock for me was although I claimed to be the person that would never spend on coffees, I was spending $50 a month at coffee shops.
This was exactly the kind of reality check and eye-opener I needed to be realistic about creating a budget for each essential category. Here is where you also need to be realistic about distinguishing needs from wants. Remember to also have a budget for a little fun like dining out, movies, etc.
Step 3: Set short- and long-term goals
It is extremely helpful to base a budget in a way that helps you achieve your short-term and long-term goals. For example, a short-term goal could be a holiday/travel and a long-term goal could be paying off a loan. You can then start to understand how much you need to save each month to achieve that goal.
“Even saving and investing as little as $25 a month and then increasing it as you pay down your debt will help you develop good wealth-building habits,” says Melissa Allen, the financial professional who’s been guiding me throughout my financial journey.
Step 4: Savings and emergency fund
When I got to this stage of a budget, I felt like there was almost no more room for savings or putting money away towards an emergency fund. But this is an essential part to ensuring you feel confident about the budget you’ve built. Try to remember that it’s not the amount you are able to save every month; it’s the fact that you are saving consistently every month that matters. A recommended amount to be maintained in an emergency fund is a third of your monthly income. I’m still working on achieving this to be honest, but it is a goal for 2018!
Step 5: Balance and re-visit
Once you set your budget it’s good to keep a track on your savings and spending each month to make sure you’re able to keep your budget balanced. Since the only thing that is constant is change, re-visiting your budget to tweak certain aspects of it is common. It is a continuous work in progress, but in my opinion undoubtedly worth the reward.
Step 6: Talk to a professional
Although it’s common to be nervous about discussing intimate financial details with a stranger, I can personally vouch for the comfort and ease you feel when you find a professional you can trust. Seek out a financial advisor you gel with and feel free to meet with a few until you find one that will understand you and your needs. I’m very happy to recommend Melissa Allen who has helped calm my every budgetary and saving anxiety with a wealth of industry knowledge and an extremely approachable personality.
We’re all faced with the battle of balancing our budgets everyday. What tips do you find are the most helpful to sticking to a budget?