Budgeting isn’t just about saving up for big stuff. It’s about knowing what you can and can’t afford and being confident about your spending decisions.
Even if your finances are fairly simple, it’s still useful to have a budget so you know what your money is doing.
Watch below as Jen gets some budgeting tips from the future during her recent visit to the Budget Fortune Teller. Wait until the end to see the unforeseen emergency expense!
Below is an overview of the Budget Fortune Teller’s advice.
1. Budgeting is about confidence
Many people avoid budgeting because they think it means giving up everything they love and converting to a super-frugal lifestyle. However, budgeting is not meant to shame you into being financially responsible – it’s simply about awareness. If you fully understand where your money is going each month, you can design a budget that allows you to truly enjoy your money and spend it confidently. Read more about how to achieve budgeting bliss.
2. Be real about your income
One of the most common budgeting mistakes is using your gross income instead of your net income as the starting point for your earnings. This can throw off your budget by giving you the impression that you have access to more money than you actually do.
- Gross income: This is your salary or hourly wage before taking taxes and deductions into account.
- Net income (Take-home pay): This is your income after you subtract your taxes and payroll deductions.
Payroll deductions are amounts withheld from your paycheque and can be mandatory or voluntary. Mandatory deductions are set by the courts or government, such as federal income tax, Canada Pension Plan and Employment Insurance premiums. For voluntary deductions, you have to agree to them – they can include health insurance, life insurance, retirement savings and union dues. Learn more about the deductions and taxes on your paycheque.
3. Watch out for sneaky expenses
It’s easy to list all your major expense categories when setting up a budget, like your rent or student loan payment. The tricky part is keeping track of all those little extra expenses. You know, the ones that most people forget to include in their budget in the first place. Here’s a list of 5 sneaky expenses to keep on your radar.
4. Set savings goals
Make savings a priority instead of a place to park leftover cash:
- Treat your savings category like a bill and contribute to it at the start of the month to keep from “accidentally” spending that money elsewhere.
- Create a separate account or chart for big savings goals. It’s easier to save when you’re mindful of your progress toward that new car or that dream vacation.
5. Start an emergency fund
Prepare for the unexpected. An emergency fund should be easy to access in the event of unemployment, illness or a critical home or car repair.
- Start your fund by setting a $1,000 goal.
- Then, build your fund until it covers 3 to 6 months of living expenses.