Budgeting - Everything You Need To Know

Do you want to take control of your personal finances? Can't you stop talking about money? It's boring, Tony. Where did this car come from? The number one money move I recommend you do is make a budget and stick to it. In today's video, you will learn everything you need to know about budgeting. If you want to change your financial future for the better, make sure you watch this video till the end. What is a budget? It's a bad word that restricts you from having any fun. No, it's not. A budget is a spending plan for your money. If you don't tell your money where to go, you'll wonder where it all went. Who needs a budget? Anybody who uses money. Money is a valuable tool used to purchase our wants and our needs. A budget allows you to determine in advance if you make enough money to afford your wants and your needs. A budget is for the minimum wage worker. When your income is low, you don't have a lot of disposable income. So a budget will give you a clear picture of what you can afford and help you prioritize your spending on the things that are most important to you. A budget is also for the high earner. If you can't manage $1,000, you can't manage $10,000. You don't suddenly learn how to manage money by amassing more money. The more money you make, the more money you spend. This is called lifestyle creep. Without a budget, you can potentially put yourself in the same financial position as a minimum wage worker. Spending money is a lot easier than making it. Whether you work at McDonald's, own a McDonald's, or is the president and CEO of McDonald's, you need a budget. What are the benefits of a budget? A budget will make you more efficient with your money. Money can be easily wasted without you knowing where it went. So a budget will help you minimize that waste and save money. A budget gives you control over your money. Without it, your money controls you. A budget helps you reach your financial goals sooner. A budget will determine how much money you can save and whether you can reach your financial goals. Whether that goal is to save up for a house or go on a vacation. A budget will help you understand your finances. People that go into debt may not even realize they're going into debt because they don't have a budget that's telling them that they spend more money than they make. A budget allows you to find the adjustments you need to make, build your net worth, and decrease your debts. A budget allows you to buy things you want. For example, you want a new laptop at the end of the month, but you only budgeted $200 a month for new toys. So what you can do is adjust your budget accordingly. Reduce your driving, restaurant visits, entertainment, and fun money until you have enough to afford the laptop. If you still can't afford it, put that money in a sinking fund and try again next month. What are the cons to budgeting? The only real con to budgeting is that it can be time consuming. But think about it this way. If creating and managing a budget allows you to save $300 a month and takes you two hours a month to create, manage, and update that budget, saving money is the same as saving time. Think of work as trading your time for money. Two hours of budgeting can be a lot more valuable than two extra hours of work. What are some budgeting methods? The percent budget. The most common percent budget being the 50-30-20 budget. 50% needs, 30% wants, and 20% savings. This budget prioritizes your needs but still allows you to have enough wants and savings. There's many different combinations of the percent budget. You should adjust your budget to fit your own personal situation. This budget can be a lot less time consuming because you only have three main categories to manage. The con with this is that it might be easier to overspend because you're not managing every expense in a different category. The next method, the zero-based budget. Now this budget is the most time consuming but is the most accurate. Remember, a budget is only an estimate of your spending plan. Results will vary. With a zero-based budget, every dollar you make has a plan. So let's say you make $4,000 a month. A zero-based budget will tell you where every single dollar is going. If you want to be in full control of your money and get the most benefits from budgeting, then use this method. The next method, the cash envelope system. When you get paid, you withdraw a certain amount of money and place them in envelopes labeled to match each category. If you put $200 in your groceries envelope, that's how much you have for groceries till the next payday. This allows you to physically see how much money you have left in each category. This makes this budget perfect for those who tend to overspend. And since you're using cash, you can't spend more than you make. This method is a lot easier to manage and a lot less time consuming than other methods. But there is a few cons to this method. You could lose your money or it could get stolen. Also, since you're using cash, you won't get any benefits of a credit card like purchase protection and rewards. The least time consuming budgeting method is the no budget budget. With this budget, there's only two things you need to pay attention to. The money coming in and the money going out. To make this budget work, set up automatic payments for things like rent, internet, utilities, insurance, and memberships. Also, set up automatic deposits for savings and pay off debt plans. The rest of the money in your bank can be spent however you like as long as you don't spend more money than you have. This budget is for people who don't like budgeting. The con with this is that you can easily overspend and you don't get any benefits of having a real budget. If you're frugal and savvy with your money, then this budgeting method can work because you're naturally a saver. But if you're bad with your money and naturally a spender, then you need a more time consuming budget. How can you track your budget? The old school way with pen and paper. Whenever you make or spend money, write it down. You can print off income and expense tracker templates online or you can make your own. Also, depending on who you bank with or what credit cards you use, some of these financial institutions have expense trackers built right into their app. For example, RBC has KnowMe Insights and KnowMe Budgets. TD has TD MySpend and Tangerine has LeftoSpend. For these apps to work, you need to use them for all your purchases. And if you use credit cards, you need to pay them with the same institution. The con with using these apps is you're not able to sync all of your accounts and not able to add manual entries. If you're looking for an all-in-one app to help you track your expenses, then take a look at Mint or YNAB. These apps are able to sync to all of your bank and credit card accounts. To use Mint, there is no cost, but with YNAB, it costs $11.99 a month or an annual plan for $84, which comes to $7 a month. If you are someone that uses cash, you'll need to keep all your receipts and write down all your expenses. Remember to check your budget at least once a week to make sure you're on track and you're not overspending in one category. If you don't track your budget, you can try to schedule your expenses. Once you do up a budget and find out how much money you spend in each category, you can divide the expense by how many times you spend a month in that category. For example, if you spend $400 a month on groceries and go grocery shopping once a week, you can spend $100 each time. And if one week you only spend $50, then that means the next week you can spend $150. Even if you do track your budget, doing this can help you from overspending. My personal budget allows me to get takeout every Friday, go to a social restaurant the first Saturday of the month, usually get gas once a week, and also fund money for the weekends. If I don't use that fund money for one week, I can add it to the next week. And if there wasn't a birthday or a holiday expense that month, I could add that extra money into savings or fund money. What are some common categories for a budget? Home expenses like rent or a mortgage, renter's insurance or home insurance, property tax, electricity, gas, water, internet and cable, transportation expenses like car payments, auto insurance, gas, tolls, parking, car maintenance, taxis, and ride sharing, food expenses like groceries, fast food, coffee shops, and restaurants, entertainment and fund money expenses like the movie theater, sporting events, attractions, bars, clubs, and shopping, other expenses like medicine, cosmetics, personal hygiene, household cleaning supplies, and pet supplies. Also things like life insurance, cell phone bills, Netflix, Prime membership, gym memberships, child care, haircuts, and bank fees. And then there's expenses that are annually and might creep up on you. These include credit card fees, Costco membership, passport and license renewal, registration renewal, birthdays, holidays like Christmas, and even taxes if you're expected to pay in. Also consider having sinking funds in your budget for big expenses like Christmas, a new car, car repairs, home repairs, and medical and dental expenses. You should also have sinking funds for anything else that you want to save up for, like a down payment on a new house, upgrading your kitchen, a vacation, or even a new laptop. You also want to track your debts in your budget. Credit card payments, car payments, line of credits, personal loans, and student debts. Another important category in your budget is investing. Saving money should only be for short-term expenses. Anything long-term should be invested. If you're looking to get started investing, one of the easiest ways is with Wealthsimple Invest. Sign up now with my link and deposit a minimum of $500 to get a $50 bonus. Referral link in the video description below. Now let's move on to how to make a budget. First thing you want to do is figure out your monthly income. This includes your job, side hustles, interest on savings, tips, commissions, rental income, pension, child care benefits, etc. Other income that isn't monthly can include dividends on stocks, gifts, tax returns, bonus, GST, capital gains, cashback apps, and cashback credit cards. If your income is the same every month, it'll be a lot easier to assign all of your money in your budget. If you have an irregular income, it's best practice to try and budget on the lower end income. So let's say month 1, you make $4,000. Month 2, you make $4,000. But month 3, you make $3,000. You should design your budget around $3,000. If you notice that you're constantly going over budget, then consider taking an average of your income for your budget. Once you figure out how much money you make a month, now you need to figure out how much money you spend a month. You can do this by going through your bank statements and your credit card statements. The further you go back, the more accurate your spending will be. I recommend going back to at least 3-6 months to a maximum of 12 months. If you use cash to purchase everything, you won't be able to figure out how much you spend in each category, but you'll be able to see how much money you're spending in total. So take an average of how much you're spending in each category and add that to your budget. Make sure you include at least minimum payment on debts in your budget. Now take your average monthly income and minus your average monthly spending. If you get a negative number, you're spending more money than you make. If you get a positive number, you're naturally saving money. The way to fix if you have a negative number is to increase your income or reduce your expenses. To maximize, you'll want to do both. If you have a positive number, that means you have money that's not assigned. You have 3 choices. Increase paying off debt, put it in a savings account, or invest it. Increasing your expenses is not a choice. You actually want to try to minimize your expenses as much as possible. So should you invest? Do you have any high interest debt? If you do, then no. Increase your debt payments and pay off your high interest debt before you do any investing. Should you save? Do you have a $1,000 to $2,000 emergency fund? If not, then yes. Save for your emergency fund first before you increase payments on your high interest debt or even think about investing. Once you have your $1,000 to $2,000 emergency fund, you want to allocate your extra money to paying off your high interest debt. Once you have that paid off, you'll want to add to your emergency fund again until you have 3 to 6 months of living expenses. You can start investing while you're saving for your 3 to 6 months of living expenses, but it all depends on your personal situation. If you want to learn more about emergency funds, click this link up here or look for the link in the video description below. Your budget isn't going to be right the first time you do it. Your budget will most likely need fine-tuning every month. Took me about a year till I had the perfect budget and had the perfect spending habits. When making a budget, your spending categories should be in order from most important, like housing and food, to less important, like entertainment and fund money. Make sure you can afford the most important things before spending on anything else. Take a look at each category every month and see what you can improve. The less you spend on your wants and your needs, the more you can pay off debt, save, and invest. What's the key to sticking to a budget? The key is making it as easy as possible and to reward yourself. To make budgeting easy, use a budgeting app or try something like Koho, a prepaid visa with built-in budgeting tools. Also, when making your budget, don't set yourself up for failure. It's better to overestimate your expenses than to underestimate them. And don't lie to yourself. This is your personal budget and you can spend your money however you like. The point of a budget is to have a spending plan for your money. A budget makes sure that you have enough money for the most important things. But make sure you pay yourself first. Creating and sticking to a budget is one of the most important things to do for your personal finances. Doing this, you're on your way to good financial health and one step closer to the ultimate goal, financial freedom. If you liked this video, hit the like button and share this with a friend. If you haven't already, make sure you subscribe and hit the bell icon to get notified when new videos come out. If you got any more questions about budgeting, leave them in the comment section below. Thanks for watching. Until next time, keep making money moves. Peace!