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.


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