As you already know, budgets are important. They are so important, you hear about them every time you ask for information on how to manage your finances, every time you look for information on the internet, and essentially anytime someone mentions the word “money”.
However, one thing no one seems to mention when they’re talking about how to budget and why you should budget is, that everyone is different. There is no “one-size-fits-all” Excel spreadsheet that can solve our financial struggles for us.
Budgeting can be one of the most difficult parts of paying off debt. It entails doing some heavy research into your own habits and cutting back on certain parts of your life you may not want to.
The good news? It’s not going to be as painful to determine where you need to cut back as you might think.
Here are three easy steps to figure out where you should cut back on your budget:
The Gut-Wrenching Spending Review
First things first, what you’ll need to do is analyze your past money behaviours. How much did you spend on housing, groceries, travel, and *gulp*… entertainment? Take time to calculate the percentages you spent and compare them to what financial experts recommend:
|Housing (mortgage/rent, property tax)||24%|
|Utilities (electricity, water, cable)||8%|
|Savings and Retirement||10%|
|Entertainment and Recreation||5%|
|Transportation (car payments, gas, insurance)||14%|
The “Greatest Desires” Challenge
For the next step, it’s best to include anyone who is involved in your financial spending plan, budget, and beyond. Sometimes having these discussions in an open and trusting environment with significant others and family can make the process much less stressful.
All you need to do for this challenge is to sit down and ask yourself, “what are my must-haves?” and “what are my greatest desires?” in life. If you consider your gym membership, your transit pass, or your dog walker must-haves, then put them into the must-haves column. However, if you consider your subscription to GQ magazine, your weekly pizza from Dominoes, and your season tickets to your favourite sports team your greatest desires, put them into the greatest desires column.
Now that you know your monthly percentages, and feel they align with what a healthy standard of spending is, sort out your budget to include these numbers. Remove your “greatest desires” from your budget and spend, but not from your life. If those are important to you, there is no way to say you can’t get those back. However, focusing on rebuilding your finances to get to a safe and comfortable standard of living should be goal number one.
Cutting back in a budget can be a hard process, which is why one suggestion is to give yourself a buffer for the first couple of months until you are settled in with appropriate spending. No one is going to blame you for being unable to change your entire lifestyle within 30 days. Budgeting, and money in general, takes a lot of patience. You will get there!