Developing the right budget is a personal thing…

Developing the right budget is a personal thing…
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I’m not sure if you’re like me but at this time of year I typically reflect a lot. I guess it’s because work is starting to wind down somewhat and I’m thinking about the end of the year. One of the things I’ve taken a lot of time to think about in recent years is my money situation. I also probably reflect on what I’ve spent as I tend to spend a lot of money during the Christmas season. I always go into the season stating that I’m not going to spend too much but that quickly goes out the window.

My friend and I met up for a coffee and I was telling her my concerns. She quickly told me that she always felt the same way and that this year she’s been feeling a lot better. When I asked her to tell me what made this year any different, she said that she had developed a personal spending budget at the start of the year. She also made a commitment to stick with it all year long so she could truly see if her spending became more in check. I have to admit, I was intrigued.

First of all, I wanted her to tell me all about budgeting. I knew that simply put, a budget could be considered an itemized summary of money coming in and money going out a given period of time. I also knew that it helped people determine how much money was leftover to grab that bite out to eat or to stay home. Most of the friends I know who’ve created a budget have done it on a spreadsheet. I also realized that it could provide me with an organized approach to managing my money better. As my friend told me about her experiences so far, I started questioning why I hadn’t developed this budget thing for myself. If I’m being honest it is mainly because I have been really busy over the past couple of years and – yes – I will admit it’s also because I’m not the biggest fans of spreadsheets and numbers in general. They kind of scare me sometimes…

Since I have wanted to take better control of my money lately, I thought it made sense to learn a bit more about budgeting. After my friend and I wrapped up our coffee date, I decided to take a peek online to find out more about why I should develop a budget and how to do it. Here’s what I found…

First of all, much of the research I found said that developing a budget can help you identify wasteful expenditures, then help to adapt the budget to any changes in my financial situation and also achieve my short- and long-term financial goals. That sounds good to me. You see – outside of the holiday season – I’m not too bad at managing my spending. I go out but not all the time and I don’t just buy things off the cuff. However, I have a lot of hopes for the future – I want to travel to some specific destinations (which aren’t all that cheap unfortunately) and also want to start saving to buy a home one day. So, I’m thinking that maybe building a budget now could help me get into the habit of putting some extra money away for these aspects that are important to me. The research told me that I could be surprised by what I find when I break down my spending. I hope not but you never know… I hope that it will give me some more financial clarity. So, I think it is settled – I’m going to build the budget.

Where do I start?

Well, I decided that the easiest way for me to get this budget off the ground was to begin with a list. I’m planning on noting down all my expenses for a week. Then, I’m going to take that information and start to build a spreadsheet. I think this is the best way to do it as I frankly don’t know where to begin about what I spend on what.

So, I’ve decided to note everything down in my smartphone so I can email myself the notes at the end of the week. I figure this will save me a bit of time when I’m ready to build the spreadsheet. After the bare bones of the spreadsheet is built, listing my expenses, I’ll add in the income from the paycheques I get every couple of weeks and take it from there.

After week 1, I start to see a major trend – I’m spending way too much money on coffee and buying lunches. I never realized how pricey this was getting as these are all things that I have at home that I could easily bring with me. I’m also amazed at home much I’m spending on taxis on the weekend. I’ve always looked at them as an essential expense but I realize now that it’s way too much money and I need to cut back if I’m ever going to save for what these vacations and my dream home.

After a couple of weeks, I’m a bit overwhelmed by it all. It’s not just all the logging but it’s the realizations I’m getting from the information I’m capturing. I guess that’s the point of the exercise but I think it’s time to organize this information a bit better.

First of all, I decide to categorize my expenses. Like the research I read suggested, I need to start with a few large categories before breaking my budget down into smaller expense categories. Then I decide to take my list of expenses, develop two separate budget lists, one for essentials and the other for extras. Within each general budget category, some items are essential (rent, electric bill and groceries); others are extra (gifts, coffees, eating out). Hopefully this categorization will help me find flexible budget expenses where I can cut back. I place a star next to these flexible items so you can identify them.

Then, I add up my budget essentials list and the extras list separately. By keeping the lists separate, I figure that I can make cuts more easily, if I need to. I then subtract the essentials total from my monthly income and, since I have a bit of money left over, subtract the extras total from that amount. Unfortunately, now I don’t have any money left over. Hmmm…I guess I need to cut back a bit. As I said before, I think I’ve spotted a few things I can do to get things in better shape with my finances.

Hopefully as I head into the end of 2013 and into a fresh New Year, I’ll be able to get myself on a better track. Creating a budget already feels like it was the right idea – helping me take better control and allowing me to achieve my long-term financial goals.

 

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