You Need a Budget

Since my position was terminated due to COVID-19, my family’s income has felt the pinch. Thanks to the government, I was able to qualify for CERBs for a while, but it couldn’t last forever. During these uncertain times, having a budget is extremely important, especially if you have a family.

My wife makes decent money, and so did I before the pandemic. Sadly, we haven’t always made good money. For most of our time together, only one of us would have a job (either her or I). There was one point where I had 8 jobs (at or near minimum wage), and still couldn’t piece together enough hours from them all to make a single full-time position. Add in moving across the country, twice, plus relocating to a new apartment every 1-2 years within province, and the expenses add up. That’s not even talking about student loans or the mortgage on our, extremely modest, house.

Step 1: Tracking

The first thing you really need to do, is track your expenses for a couple of months. Clip your receipts, get copies of your bank statements, whatever you need to do. I can pull up a couple years worth of transactions from my bank, but it doesn’t necessarily say what I bought. As a result, you may not be able to work backward too far.

I’d suggest a basic spreadsheet to get you started. Something very simple. Include Date, Vendor, Category, Amount. Once you’ve input a month or two of transactions, you can figure out how much you spent per category, and it’ll give you an idea of your (current) expenses.

Many people stop at this step, and call it a “budget.” But it’s really just tracking. In order to budget, you need to be able to predict your expenses & income in advance, and allocate money toward it.

Step 2: Budget “Real” Expenses

So you’ve tracked your spending for a month or two. That’s great. But it doesn’t really cover all of your expenses. You have Christmas Presents & the big meal that’ll pop up next month. There’s your Amazon Prime & Netflix Renewals. Maybe a Costco Membership? A professional license? A quarterly haircut?

These are things you don’t necessarily spend money on every month, but they come around every year anyways. You’ll need to add those to your categories.

Once you’ve added your categories, you take the total amount that you would pay in a year for that category, and divide it by 12. Boom, you have your monthly cost for say, Christmas ($35/month = $420).

By budgeting a little at a time for these things, it won’t suddenly destroy your pocketbook. It also keeps Christmas in your mind throughout the year, allowing you to pick up presents, using cash, when they come on sale.

Step 3: Set Goals

If you’re aiming to kill debt, that’s one thing. But if you know you’re going to need to renovate your bathroom in 3 years, that’s a whole different sport, and you’re going to need to start putting money aside sooner rather than later. Trust me, you do not want a big renovation to ride on a credit card.

Let’s put that bathroom reno at $10k, and schedule it for 3-years (36 months). In order to be able to pay for it all in cash, you’re going to need to budget $278/month. Much like my annual expenses, I actually throw this money into a savings account. It’s great to see it build up, and there’s a little bit of interest that helps it grow while I’m saving.

Step 4: Be Accountable to your Budget

It’s important to keep budgeting forward, and to keep on top of tracking your expenses. When your category reads $0 left for the month, either move money from another category, or put whatever you’re looking to pick up back on the shelf.

This can be pretty tricky for a lot of people. Although the spreadsheet I provided earlier was a good start, it can get pretty painful to manually enter your transactions. Once you actually start budgeting, I actually recommend using a great app that I’ve been using for years: You Need a Budget (YNAB).

I first started using YNAB with version 3, and used YNAB 4 for a long time. These were not apps, but actual programs that you used on a computer. The current version of YNAB, is accessible both on a website, and on your phone (iOS or Android). You can link it directly to your bank and credit cards, which allows you to import & reconcile transactions. Additionally, it allows you to create the categories, set the budget, and have goals right in the program.

Both the web & mobile apps have reports to help you see how you’re doing and where your money is going. Additionally, there are add-ons for the web app that can give you even more reports to further break down your performance. These are handy, and I’m sure I’ll get into the further another time.

YNAB: The 4 Rules

1. Give every dollar a job.
2. Embrace your true expenses.
3. Roll with the punches.
4. Age your money.

Essentially, it’s a lot of what I wrote about above. The key thing is to age your money, such that the money you spend today has been in your account for 3+ months. This may mean “overbudgeting” or “underspending” some of your expenses at the start, and watching a buffer form (my technique), or relying on whatever you budget for “savings” to grow the age of your money.

I could talk a lot more about this program, and what my family has been able to accomplish with it, but I think I’ll leave that for future articles.

Conclusion

Beginning the begetting process is hard. You need to track your expenses, look at your true expenses, and create goals for the future. Even more importantly, you need to hold yourself accountable. All of this is tricky for anyone, with a couple of kids and only 1 real income, it’s vital.

I’ll be doing a whole series on finance & budgeting. So be sure to come back often for useful tips, pointers, and ways to trim your expenses.