Mar 102012
 

There are lots of great suggestions out there for saving money. One I’ve found particularly useful is making a budget. This post is to help personal finance beginners to think about money, and take control of their own financial situations. A budget is a detailed plan for the formula below.

Income – Spending = Savings

For more savings we just need to increase income and decrease spending. In my experience it’s usually easier to spend less than to make more because (A) it’s physically easier to not buy something than to work for extra money, and (B) savings aren’t taxed. A $100 salary raise means I only get to see $60 of it after paying income tax and CPP/EI/DCPP. My marginal tax rate (30%) isn’t even that high. People who make more than me, and work in a higher taxed province like SK, MB, or ON, probably only get to keep half of their raise, especially if they also have union dues, taxable benefits, and other deductions (ಠ-ಠ). In the US, just replace the Canadian payroll taxes with Social Security, Medicare, and Unemployment Tax. Of course making more money is always a good thing (^o^)丿but there’s an old saying that goes “A penny saved is worth two pennies earned.”  To the right is a simple example of how a budget works.

To implement a budget, spend one month first tracking all income and expenses. Then study the results and find ways to decrease spending, and if possible, increase the income. Finally set reasonable goals and limitations for future months, and stick to the budget and don’t overspend. If I pay Telus for my phone, and Bell for my internet, then by looking at both of these expenses together on a budget it’s easy to see that I can simply consolidate these services with just one company, and get a bundled discount.  Besides tracking just our financial progress though, budgets also teach us to be mindful of our habits so we can make better lifestyle choices (^_^) If I unknowingly ate too much food last month, I can easily spot the inflated food spending in my budget, which would help to explain the extra pounds I’ve put on lately. This is only an example of course.

I have a fixed amount in my head of how much in total I should spend each month. Here’s a look at my spending categories.

I changed the name of my employers to Job 1 and 2, and blurred my numbers so my friends in real life who know how much I pay for strata fees, for example, won’t know this is me. But for curious readers I’ve left some numbers (which shouldn’t jeopardize my anonymity) visible from January, which was a typical month of spending for me.  Budgets are quite fun actually. This is my 3rd year doing them. It’s really interesting when I compare my numbers today with the past. Budgets can be as simple or detailed as you want to make them. But as life gets more complicated, so will the budget. I have roughly 30 categories for my expenses. About half are fixed and the other half are optional. Every budget is personal and unique depending on each person or household.

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Random Useless Fact: There are over 180 official currencies worldwide ( ゚д゚)

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MyCanadianFinances
MyCanadianFinances
03/11/2012 4:28 am

How long did you it take you to make your budget on excel? I have resorted to using online budgets because I always forgot which categories to add and then I get very frustrated. Also I tend to forget about them. So now I let a computer fill in my budget for me, I love computers and the internet haha.

Liquid Independence
Admin
03/11/2012 4:55 am

I spend about 10 minutes a week keeping my budget up to date. The spreadsheet template and formulas were made in 2010 and took me awhile, but now all the equations are there and I just plug in numbers. I’ll have to try a budgeting program some time since it sounds easier than what I’m doing ( ^^) Which online tool do you use? I’ve heard mint.com is pretty popular.

MyCanadianFinances
MyCanadianFinances
03/11/2012 5:04 am

I use Mint.com. If you have a smartphone it gets even more powerful because you can check budgets on the go. I have saved tons just by knowing how much I had spent in each given category at any time during the day.

Yea, I had a simple budget which encompassed just my basic bills (that is all I use to have) but as I started living life my simple spreadsheet really didn’t cut it.

Plus with Mint everything is laid out so perfectly. You can literally track everything, see graphs and what-not. But I am sure you have heard this many times before haha.

Sunny
Sunny
03/11/2012 7:49 am

This is quite a nice way to keep track of your expenses and see were your money goes. Good work.

Liquid Independence
Admin
03/11/2012 2:36 pm
Reply to  Sunny

Yup, the first step to a leaner balance sheet is knowing where to trim the fat (^_~)

Daisy
03/11/2012 8:52 am

Your budget is…. very professional. haha. Mine is really simple, mainly because I dont have a big cash flow coming in or out each month. One upside of being broke – simple budgets. But really though, I love yours.

Liquid Independence
Admin
03/11/2012 2:38 pm
Reply to  Daisy

Thanks Daisy. Your spending reports are really cool too >^_^<. I enjoy reading them.

Michelle
03/11/2012 11:33 am

I need a well detailed budget like this! I keep most things “in my head”, but in reality that just means I’m super lazy.

Liquid Independence
Admin
03/11/2012 2:45 pm
Reply to  Michelle

My parents do everything in their heads. It appears to be working for them. At least you already have a budget (☞゚ヮ゚)☞

Simple Rich Living
Simple Rich Living
03/11/2012 4:00 pm

Thanks for honorary mention :))). I’ve been a super bad blogger and haven’t posted for a couple of weeks…I do have a post coming soon. I like your spreadsheet quite a bit…you can see everything on one page. I, on the other hand, have many :). I have one for the monthly budget…for variable spending only. Bills such as hydro, phone and insurance are pretty much the same so so I don’t track it this spreadsheet. I was very curious to find out how much money I spend each year and on what so I created one to track to my TOTAL annual spending. All the bills and the numbers from the budget (variable) spending spreadsheet get entered into this one. My goal is as the years go by, I hope to make the best effort to have similar numbers (and be watchful of lifestyle inflation).

Liquid Independence
Admin
03/11/2012 5:44 pm

My spending goes up about 5% every year due to a combination of lifestyle inflation and regular inflation. Sounds like you have a pretty good budgeting system yourself (^v^) Good luck with your goal.

RickPsychGuy
RickPsychGuy
03/11/2012 10:09 pm

Great post! I strongly agree that creating a budget and sticking to it is one of the best ways to save money. One suggestion for those starting a budget: I use a budget app on my iPhone to keep track of my spending. Every time I make a purchase, I immediately enter it in the app (if I don’t do it immediately I’ll never get to or I’ll forget about it). I’m sure there are plenty of budget apps out there. The app I use is iMoneyTrack and it costs $2.99.

Liquid Independence
Admin
03/12/2012 8:00 am
Reply to  RickPsychGuy

Ah, I have to get on the smart phone bandwagon. Maybe when the iPhone 5 comes out. Technology makes it so convenient these days to track your spending. Thanks for the advice.

MyCanadianFinances
MyCanadianFinances
03/12/2012 8:08 am

Do some research into Android phones. They are much cheaper. And although I love my IPhone I will not get another next time it will be an android for sure.

Liquid Independence
Admin
03/12/2012 8:13 am

You had me at “much cheaper” (^_-)

Julie @ Freedom 48
Julie @ Freedom 48
03/12/2012 3:28 pm

That’s an excellent spreadsheet – accounting for everything! Can I just say how awesome your hydro bill is! We’re paying about $200 for electricity.

Liquid Independence
Admin
03/12/2012 3:33 pm

I suppose this is one benefit of living in a multi-unit building (=^_^=)
I like my apartment a lot but sooner or later I’ll have to get a bigger place, and when that happens my hydro bill won’t be as cheap anymore.

Katie
Katie
03/13/2012 4:06 am

I need a better budget. I use a cash budgeting system right now, but the problem with that is there are areas where I could probably cut back, but I don’t record it so it’s hard to know just how much I should cut out.

Liquid Independence
Admin
03/14/2012 7:00 am
Reply to  Katie

It’s hard to keep track of every cash transaction. I keep all my receipts and throw them into a shoe box. Then add them up from time to time.

Phil
Phil
03/14/2012 4:17 am

Instead of a budget I just keep track of each penny in and out each month, and have been doing so for the past 13 yrs. I have the following general bucket headings:Food, daycare, Gas, Misc. (Needs), Misc. (Extras), Debt, Phone/Internet, House Heating, House Power, House upgrades, Chalet Heating, Chalet Power, Chalet upgrades & taxes. at the end of every week I take 15 minutes to update the file with new spending. I keep totals for each year and then have an overall graph which tracks spending vs earnings vs. invest ment growth and have been watching my investments catch-up to my overall spending at which point I will reach a finacial independance day. One additional point I would like to make is setting up a Net Worth statement too, as it gives you a sense of where you stand and any point to compare past years to know that you are growing. Knowing history allows you to predict spending patterns and provides for planning future decisions related to spending or investing (high or low months or other spending patterns).

Liquid Independence
Admin
03/14/2012 7:07 am
Reply to  Phil

Great ideas Phil. It takes a lot of discipline to track your finances for so long. I bet your 13 year chart looks pretty interesting. Everyone should have a net worth statement. It’s like a balance sheet for individuals :0)

Stacia Bercier
Stacia Bercier
03/22/2012 6:42 am

Good post. Hopin’ for more! 🙂

Catherine Otsuka
Catherine Otsuka
04/09/2012 6:55 pm

Exactly what I was searching for, appreciate it for posting.

Linda A Perez
Linda A Perez
05/29/2014 8:00 pm

Great article,there are plenty of a good financial adviser in Toronto like KPMG, EY, Kingsdale Capital or Faberfinancial . Consult a good adviser who can guide you the proper way of dealing your finances wisely.