Friday, February 10, 2023 / by Mario Daniel Sconza
2023 is picking up right where 2022 left off with ever-increasing prices on household necessities and higher interest rates leading to sometimes drastic increases in mortgage payments. More than ever it’s time to review spending and cashflow and get a system in place to ensure you can make ends meet. If you were lucky enough to see your income rise a little that will help, but our experience tells us that working the expense side of the household budget is where the biggest gains can be had.
The basic concept of budgeting never changes — it’s always been about dividing up your money into little piles for the various things you need, and want. It doesn't seem like a difficult task, so why is it so hard to put into practice?
The obvious answer is that no matter how small you make those little piles, they still add up to more than you have! However, it could also be that mistakes in setting up your budgeting system are contributing to your failure.
Here are eight more things that can easily derail any budgeting system:
1.) You didn’t start with the right number.?
Your take home pay (AFTER all deductions) is the starting point.
2.) You used the wrong time frame.?
Some bills are monthly, but most of us get paid every two weeks. A two-week spending plan is much easier to follow and matches up with your cash inflows.
3.) You had no idea how much you were spending when you made your budget.?
Track your expenses for at least two pay periods and create your budget based on actual data, not your best guess. You can always tweak the amounts later if it proves to be unrealistic.
4.) You forgot to record all of your expenses.?
Whether you use the latest app or a collection of post-it notes to track your expenses, it needs to be quick, easy, and you need to make it a habit. One idea is to leave your cash in the bank and use a credit or debit card for everything so you can easily view your bank or credit card statement to see exactly where your money went. Many banks now offer some expense tracking capability right in their online banking system. Don't forget expenses which are seemingly invisible but still need to be tracked, interest expense on credit cards or lines of credit for example.
5.) You simply spend too much.?
Just because you have been spending $500/month at restaurants and bars doesn’t make it a reasonable or sustainable amount. You need to start from scratch by totaling up your needs, prioritizing your wants, and then determining your spend based on what you can afford.
6.) You didn't contribute to a reserve fund.?
Unexpected expenses like car repairs or a trip to the dentist can derail your budget if you don't have an emergency fund to dip into. Makes sure to set aside some sort of contingency on a regular basis to give you a little wiggle room when things go sideways.
7.) You didn’t ensure your spouse/partner/kids were on board.?
Budgeting is a household commitment that requires an all-hands-on-deck approach. Explain to your kids that the actual supermarket cost of the food in a $9 McDonald’s meal is likely around $3, and that by cooking your own burgers & fries you now have $6 more (and arguably a better burger) Don’t be shy about telling your friends either…. declining an invite for a night out you can’t afford is not a crime! (chances are they can’t afford it either).
8.) You had no goal?and lost your motivation.?
Pick a realistic goal your budget will help you achieve and track your progress. Are you aiming to pay off your credit card? top up your RESP/TFSA/RRSP contributions? eliminate your line of credit balance?