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It’s no secret that following a budget can help you manage your money wisely and reach your financial goals. But for many people, sitting down and creating a budget can be a big challenge. Dealing with finances can be an emotional and stressful task, feeling more like work than reward.
This week’s Reimagining Wealth newsletter is designed to help you get a handle on where your money is going. Learn how different approaches to budgeting can help you take charge of your money. Then, use our worksheet to put together a budget you can be proud of, and that you will actually follow.
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Spending goals that bring joy
A budget can help reduce anxiety about your finances and help you gain control, says Charity Oisamoje, a money expert and founder of The Finance Key. “When you don’t have a budget, you might actually feel overwhelmed by your finances,” she says.
Rather than looking at budgeting – or having a financial plan if that word sets you off – as a chore, look at it as an opportunity to take control and work towards spending goals that bring you joy.
Your spending should reflect what you care about the most, whether that’s saving for your future, taking care of loved ones or pursuing a personal passion. But how do you infuse your values into the budgeting process?
Values-based budgeting is a way to align your money to your goals. To start, you need to ask yourself what your key values are and align those with certain financial goals. The idea is to focus your spending on areas of your life that will give you the most happiness – a very personal approach to finances.
Consider these questions: What kind of life do you want? Are you on the path to buy a house, a cottage or a new car? Do you want to renovate your home? Do you want to spend more money on travel? Do you want to retire early? Do you want to leave a large sum to your kids? Do you want to live debt free?
Budgeting works best when you have goals in mind and understand where your money is going. A basic budget plan aims for a 50-30-20 split – with 50 per cent going to necessities, 30 per cent to discretionary spending and 20 per cent to debt and savings. But the best budgeting system is one that works for you and that you can stick to. And budgets don’t need to be static – they can be adjusted as circumstances change in life.
A values-based budget can be easier to follow because you’ve made a decision about what matters most to you. For example, if you’re committed to taking a big trip each year, you’ll be more willing to cut certain expenses because you know you want that money to fund your travel goals instead.
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Smart budgeting strategies to consider
Another budgeting strategy to consider is called “loud budgeting,” a way to openly decline spending. That might mean saying no to an invitation to an expensive night out—even if you can afford it—and making a point not to buy things you don’t really need.
Mark McGrath, a certified financial planner and associate portfolio manager with PWL Capital Inc. in Squamish, B.C., is a fan of “reverse budgeting,” a strategy he calls “remarkably effective.”
To start, figure out the financial goals you want to achieve, when you want to achieve them, and how much they will cost. Then, work backwards to figure out how much you need to save to meet that goal in the timeframe you set out. Shorter term goals, such as taking a vacation or buying a car, are easier to calculate. For retirement, a common starting point is creating a portfolio that is 25 times the income you want in retirement, adjusted for inflation.
“You’ll need to consider your capacity to save, inflation, your tax rate, and an expected rate of return on your portfolio. There are many online calculators that can help you with this,” says Mr. McGrath.
However, budgeting strategies only work if your income exceeds your expenses like rent or mortgage, food, clothing and utilities. So, the first step is getting a handle on your finances.
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Get started
Need some help creating a budget? Print out and try our worksheet to get closer to your financial goals:
Question #1: What are key areas where you value spending your money?
(For example, debt repayment, saving for a house, saving for a trip, education, retiring early.)
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Question #2: What are areas you do not value spending your money on?
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List your monthly income:
______________________
List your monthly fixed expenses:
Mortgage/Rent: _____________
Utilities: _____________
Phone/Internet: ___________
Car/Transportation: ___________
Insurance: ___________
Debt payments: __________
Other: _________
List your monthly variable expenses (add as needed):
Entertainment: __________
Dining out: __________
Home maintenance: __________
Clothing: __________
Grooming: __________
Gifts: __________
Online subscriptions: __________
Other: __________
Keeping your key values in mind, list your top financial goals, both short- and long-term.
Examples could include the following: Pay off your line of credit by end of 2025; save for a vacation in summer 2026; save for retirement with a registered retirement savings plan or tax-free savings account.
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Consider what it will take to achieve those goals in your desired timeframe.
How much would you need to save each month to do so? Remember that you won’t necessarily be able to reach every goal in the same time frame, so you might want to focus on one or two goals to start.
Then, examine your income versus spending.
Add up your fixed and variable expenses and compare to your monthly income. Are you spending more than you are making?
Are there areas you can cut? For example, are there online subscriptions you don’t use? Are you spending too much on entertainment? Consider how your actions could get you closer to your financial goals.
Overwhelmed? Don’t be afraid to ask for help.
If you find budgeting a challenge, ask a trusted friend or relative for help. Or seek professional advice from a debt counsellor or financial advisor.
Stay tuned for next week’s newsletter: How to free up time for what you love to do.