Budget

The key benefit of creating a budget is that it adds stability to your finances by allowing you to anticipate expenditures as they come and develop suitable financial plans to ensure that you are progressing towards your long-term savings targets and financial goals. Another benefit of a budget includes being able to work towards large expenditures that you are planning to make such as a car, a vacation, etc. By assessing your monthly expenses, you can determine exactly how much you need to save and when you can go out and make that big purchase.

Creating a budget plan is simple in concept, but takes discipline to execute properly. The first step is to understand your total (after-tax) cash inflows from your various sources of income. Next, determine the expenses that you cannot avoid (such as rent, food, transport, etc.). From the remaining amount, you need to assess what percentage should be allocated towards savings, what percentage to allocate to investments, and what amount can be used for an upcoming expense you are planning such as a vacation. You can use a simple spreadsheet for your budgeting, but if you would like to truly automate your monthly budgeting, use the Hardbacon budgeting app where you can access all your accounts in a central view, gain visibility into your expenses, and see exactly where you can cut back and save

Zero-based budgeting is a type of budgeting that is designed to mitigate non-productive spending and grow savings over time. While traditional budgeting simply subtracts outflows from inflows to provide the total sum of discretionary spending money left, zero-based budgeting takes it a step further. Each expenses is assigned to a category, but there are also categories for specific financial goals. For example, if you are building up an emergency fund, then a specific amount needs to be channeled towards that category too. Similarly, if you are looking to build your RRSP, then a specific amount each month is dedicated exclusively to the RRSP category. This way, there are fewer wasted dollars as each dollar is now going to its own category rather than tallying up to a generic ‘discretionary spend’ amount that may cause frivolousness in spending.

Using budgeting applications on your phone or desktop helps you automate a lot of the day-to-day personal finance tasks that you may ignore during particularly busy periods. Budgeting apps enable you to see all your expenses in a single view, track spending by day and by category, and avoid potentially costly mistakes. Many of these free budgeting apps also give you a very comprehensive overview of your expense patterns to help you track where you spent the most money in a period, and recommendations on how you can meet your unique budgeting and savings goals.

The envelope budgeting system is one of several budgeting tips you can use. It involves dividing your main expenses (such as rent, groceries, heating, gas, etc.) into categories and assigning a dollar amount that you can spend on each month on each category. Once that category’s number runs down to zero (i.e., you spend your entire allocation for that month), you do not spend anymore until the next month starts. It gets its name from the fact that some of its early practitioners used to put each category’s money into specific envelopes as cash. However, you can still make this system work even if you use a card for your purchases.

For most households, groceries are one of the major expenses each month as they are vital for survival. As such, being able to save money on groceries can be a major way to unlock extra cash each month. One big step you can take is to join the loyalty program of your preferred grocer. Most big box grocery stores such as Wal-Mart, Loblaw’s and Sobey’s all have individual rewards programs that enable members to earn points with each purchase and redeem them at a later day through discounts on groceries. You can also use cashback apps which are simply apps on your phone that often allow you to link your credit or debit card, so you can shop and earn cash back almost instantaneously. Additionally, where you go grocery shopping matters a lot too. Shopping at a discount grocer can save you up to nearly 25% on your grocery bill versus a premium grocer.

If you are planning to make an Excel budget, there are a few steps you need to take. First, record all your inflows. This refers to all your sources of income such as your day job, side gig (if applicable), investments, etc. Next, make a list of your fixed expenses that you have to spend each month such as rent, groceries, gas, etc. Lastly, track your discretionary expenses (like the time you went for a movie, ate out at a fancy restaurant, etc.). Add up all these expenses and subtract them from your total inflows to find out how much you have available to save or invest each month. If this sounds like too much of a process, use a budgeting app that automates all of the above for you!

You may have heard of Mint as a budgeting app that helps you track your income, expenses and savings by syncing to your bank accounts and cards. While both Mint and Hardbacon allow you to gain visibility into your day-to-day transactions in a seamless way directly on your phone, the Hardbacon app also allows you to track your investments and build a clear financial plan to help users achieve their specific investment objectives.

The 50/30/20 Budget  is a popular budgeting ‘rule of thumb’ that was initially coined by Senator Elizabeth Warren. The premise of the rule is that 50% of your income should go towards your needs (food, rent, gas, etc.), 30% towards your wants (discretionary spending), and 20% towards your financial goals which may include savings or investments. As such, if a person’s after-tax income is $5,000, then $2,500 (or 50%) should go towards items that they need to survive, $1,500 (or 30%) should go towards items that they derive pleasure from, and $1,000 (or 20%) should be socked away into a savings or retirement account such as a RRSP or TFSA.

The short answer is that it depends on your individual circumstances. Costco is great for people (particularly families) that are looking to buy items in bulk as they can avail major volume discounts. These volume discounts add up over time to offset the cost of the membership. The base membership at Costco costs $60, so if you plan to be a reasonably frequent shopper at Costco, it may well be worth investing in a membership. However, if you are not going to shop as frequently (or are an impulse buyer!), then you may struggle to breakeven with the cost of membership.

Your emergency fund is your backup fund if you find yourself in a situation where you urgently need to make a large expense and/or you are not able to earn an income for a few months and need to continue making rent and other payments to be able to live. Most experts advise having between 3 to 6 months of your monthly expenses saved up in the emergency fund.

Coupons are paper or digital vouchers that provide discounts on specific items within stores. Coupons may or may not come with conditions attached (for example, “spend $20 and get $5 free”). In Canada, there are several couponing sites that users can obtain coupons from for certain stores that they are planning to shop at. You may also want to consider installing the Honey browser extension that automatically trawls the Internet to check for applicable coupons on the website you are on. If you are able to find and use these coupons, they can help you save significant sums of money on your purchases.