I have done budgets wrong in all the ways. The biggest mistake being that I would use made up numbers to build it. I would sit down with my spreadsheet and good intentions and build a pretty little budget that’s all color coded and balanced and beautiful. In this budget I would have some actual numbers in there like my income and insurance which were predictable and consistent. The more variable parts of the budget like food and fun money I would take a best guess approach. Food, for example, I would say that I would spend $200 on food for the month. Little did I know that our family on average actually spent closer to $450 on food a month. So obviously expecting to get to the end of the month on $200 was not realistic for us. Let me be clear, it is very possible to cut spending in an area by that amount. Expecting to cut $250 a month out of your food budget without realizing that that is what I was trying to do, meant that I didn’t actually change my behaviors very much. By not changing any behaviors in that category I set myself up to fail big time. I also ensured that our budget didn’t even have a hope of working for us because regardless of what I wrote down, we still ate $450 worth of food each month.
We want our budget to match what we are actually doing with our money. What goes in the budget should be a reflection of how we actually spend our money, not how we think we spent it or how we think we should spend it.
This is the biggest reason people give up on budgets and assume that they don’t work. So when we make our budget now we will do a little prep work to make sure we have good information going into our budget. This is how we make it realistic and successful. To do this we will do a little spending analysis. This can take a little time and effort to do, but it is the only way to make sure we have good information to work with. Don’t even waste your time trying to make a budget with made up numbers. I can tell you after dozens of attempts that it will not work well and you’ll end up more frustrated and further from the end goal than before.
The concept of the spending analysis is really simple, you just take your bank and credit card statements and tally up how much money has gone into and out of your accounts in different categories over the month. It can be daunting if you spend money from many accounts or if you work a lot with cash, but I want you to take the time and do this. The more months you do the more accurate your information will be and the more of the less frequent expenses you’ll catch and account for. So you can do the last month only if you want, or do multiple and take averages.
The Government of Canada website has a really great tool for tracking spending and budgeting that you can access at this link: https://itools-ioutils.fcac-acfc.gc.ca/BP-PB/budget-planner or by going to http://www.canada.ca and searching budget planner.
The online budgeting tool offers a very comprehensive list of possible expenses. Again, if there is anything that you need to add to make it match your life, do it! We don’t need to add so many different categories that it becomes tedious to track your spending according to your budget. On the other hand, it should be thorough enough so that you can see where changes in behavior need to happen. If you’re curious about how much you spend on takeout or coffee or liquor for example, feel free to break down your food category into those subcategories, or you can do just one total for food. The more detailed you are, the easier it is to spot places that might need some habit changes.
If you’d prefer you can always go with the ol’ paper and pencil model, or make your own budget in excel. I think this budget tool is super easy to use. It’s laid out very clearly. You can add lines to represent spending categories that they haven’t included. It gives you the option to enter amounts in daily, weekly, bi-weekly, semi-monthly, monthly, quarterly, every six months and annually. This is great for when it comes to irregular expenses. So this tool actually does the math for you. (buh-bye excuses of I’m no good at math)It even has a column to enter your actual spending in each category at the end of the month, which is very important in our re-evaluating, and revising stage of the budgeting process.
This part might feel crappy to do. You might not like facing how much money you’ve spent in certain areas or how little you’re saving or putting to debt. It’s ok. This is where we pull our heads out of the sand and get real with what we are doing. It is only from this place and all it’s yuckiness that we can move forward to where we want to go. So lean into the discomfort here. Push through and do the work to see how you’ve been doing your money thus far. I promise that on the other side of this feeling is more empowerment and control and success.
Lots of love
Dawn
Tax Wise 