Image credit: Kelly Sikkema on Unsplash

How to Budget — A Household Superpower

Life’s expensive. It sucks.

We see the price tags rise on the goods and services we buy every day, often without a commensurate increase in our wages to compensate. Over the past two years especially, inflation has hit the average household hard — official inflation was between 4–5% in Canada for 2021, and just above 6% in the US. The real levels of inflation are likely much higher, due to the methodologies in how the consumer price index (CPI) is calculated.

All of this translates into more money required to purchase what we need to survive, whether that be food, shelter, or others. And it’s this that first motivated me to start a budget. I’ve always been pretty good with my money, not spending more than I earned, but I never really knew exactly by how much. Seeing the cost of living increase, and knowing that I would soon have to support two people on one income (as my girlfriend was immigrating to Canada), I would have to be diligent with my finances and really know what each dollar was doing.

This is where the budget comes in. A budget (provided it’s honest and realistic) can be an absolute game changer for household finances. It’s not complicated to set up (in fact, free budget templates abound on the Internet, though you are always welcome to make your own that’s a little more tailored to you and your situation) and all it requires is consistency and keeping track of your spending. On that last point, most transactions made today are by card, and so your bank apps will keep a record of your transactions so you can pull them from there instead of hoarding paper receipts.

If you’re anything like me, than you’ve most likely avoided taking a good hard look at your finances. Even if you’re in good shape financially, it hurts to actually open your bank apps and take a look at all your spending — mostly because it’s almost always more than we think. I did this for a long time — rarely opening my bank balances, confident in that I knew I was in the black, but if you had asked me how much I spent in a month on a given good or service, say, at bars, I couldn’t have told you.

From what I’ve read online and gleaned from conversations, there appears to be a mental hurdle for a lot of people when it comes to budgeting. It’s as if budgeting is for lower-class people who need to scrounge and save every penny, and thus there’s a kind of stigma. The phrase “I’m on a budget” comes to mind. Nobody wants to be the person who says “I can’t afford this” or “I can’t spend that money”, but there is a very liberating realization when you finally do. And budgets are for everybody — rich, poor, everything in between. People with wealth are some of the most diligent budgeters and savers around — else, how would they have accumulated their wealth? Knowledge is power, and in the case of your finances, the maxim holds as true today as it ever did.

Down to business then. What does a budget look like? What should you include? I make my budget in the form of a spending tracker, where I track and categorize each expense and weigh it against what I budgeted. It’s useful to start with a spending tracker to get an idea of what you do spend, and then create budget allocations from there.

Here is a screenshot of a hypothetical budget, based off a net monthly income of $5000:

In this example, you have almost $2000 leftover after expenses. Doing pretty damn well.

I just made up the numbers, which aren’t maybe the most realistic for many people, but what’s important here is seeing how it’s broken down. I find a pie chart to be a very effective visual representation of where your money goes each month, and it’s a useful way to set what your ideal (and realistic) goals are for saving and spending. Each budget will look different depending on the person and their life situation and goals.

Now, the real secret sauce of my budget is the spending tracker. That’s how I see where all my dollars go, and what I can use to compare my actual spending against my budget. Here is a screenshot of the template I made:

The table on the right is all set up with formulas to automatically tally spending by categories as I fill in the spreadsheet

It’s a fairly simple and straightforward setup, but nonetheless very effective. Let’s do a quick breakdown of how it works.

Date: self-explanatory, the date of a given transaction.

Location: Again, where the money was spent (e.g. McDonald’s, Hermès, etc.)

Type: This is where I start to get a little fancy. I classify my expenses according to two main types — discretionary and non-discretionary. As the names imply, non-discretionary spending is for the expenses that do not change (think rent, insurance, phone bill, groceries) and that are always present. Discretionary on the other hand, is anything that you choose to spend money on that isn’t strictly necessary (restaurants, alcohol, shopping, trips, etc).

Category: Breaking it down further, I then classify expenses into various categories. You can see them listed on the right side of the spreadsheet. You can use any categories you want, as many or as few, and I have found that the ones listed work very well for me and my lifestyle.

Amount: Again, self-explanatory.

Paid By: This is what type of payment you used. I will typically put “Debit” if I paid by debit card, or if by credit I’ll put what kind of card (e.g. “Visa”). If it’s cash, I’ll say cash and you can use whatever else you want, such as PAD, online banking, etc.

Comments: This is where you can leave any comments for future reference. I find this extremely helpful, as I go back and look through past expenses I often think “What was that for?”, and leaving comments when you have large and/or unusual expenses (let’s say a large restaurant bill) can be helpful (e.g. “Charlie’s birthday dinner, Jenna forgot her card so I picked up her bill, she e-transferred me the money).

On the right hand side, this is where the magic happens. I’ve set up my template to automatically tally up my expenses, both by type as well as category, so I can see how much I spend on each at a glance. It also lets me easily compare the current month to previous months to see if I’ve improved, gotten worse, or stayed the same. The only thing I have to manually input here is my total income, as that can change (due to income from side hustles, etc).

And that’s pretty much it! You really can go as crazy or as tame as you want to with a budget, and if I could leave you with only one takeaway from this article, let it be that a budget is a tool that can help you imensely. It is not something to be ashamed of, it doesn’t mean that you’re bad with money. Quite the opposite in fact — having a budget means that you’re taking control of your personal finances, and that is a veritable real-life superpower.



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