Four Steps to Successful Budgeting

Does the word 'Budget' make you panic? It shouldn't! This is just a way for you to be more conscious of your spending. There's no doubt that as a student you will have SO many demands for your money, but you can make wise decisions about how you spend your well-earned money. Take a bit of time to explore how you can spend responsibly and feel good about knowing where your money ends up.

The first thing you must do is to determine your income, expenses, and then what’s left over. Follow this four-step process to get yourself organized and on course to successful budgeting. Using easily-adapted worksheets track your spending and income to help you determine and then stick to your budget.

Step One: Set up Income and Spending Categories
Step Two: Calculate Budget Amounts
Step Three: Record Your Expenses
Step Four: Set Spending Goals and Adjust Your Budget

Step One: Set up Income and Spending Categories

Track your money using a simple chart or worksheet. Create categories for where your money comes from and how it is spent. Everyone makes and spends money differently, so make sure your categories reflect your individual circumstances. Don’t forget to include your hobbies (sports, fitness, crafts, cars) and habits (coffee, newspapers or magazines). If you have children be sure to create categories for money spent on their clothing, lunch money, activities, etc. Remember to include any pets you may have (food, vet bills). Keeping your spending organized will help you see exactly where your money is going.

Step Two: Calculate Budget Amounts

The first step to calculating your budget amounts is to determine how much you currently make and spend. Determine your monthly pay using pay stubs or banking records. If your pay varies from month to month, use your pay stubs to figure out your average monthly pay. Don’t forget to include other sources of income, like student loans, scholarships, parental contributions, GIC’s or educational savings plans, etc.

Collect your monthly bills and find out how much you are spending for each category (rent or residence, electricity, heat, car, insurance, food, entertainment, etc.) If an expense is incurred more or less than monthly, convert it to a monthly amount before entering it in your worksheet. For example, if you pay for residence and meals only once for each four-month semester, divide your total residence/meals bill by four for an average monthly amount.

Once you have determined your monthly income and spending for each category enter these amounts in your worksheet. Keeping your budget amounts realistic is important, but you must also aim to reduce your actual spending amounts by setting realistic spending targets. Categories like food, entertainment, and even some utilities can be reduced by savvy shopping and cost-conscious activities.

Step Three: Record Your Expenses

Begin recording your income and expenditures for your first full month. Enter each credit in the appropriate income category, and each of your expenditures in the correct expense category. Remember to record your cash expenses as well, even if it is only a bagel and coffee. It all adds up! You will be surprised at how much of your money is spent on daily or weekly habits. For more information about these small habitual expenses, visit David Bach’s site about ‘The Latte Factor,’ and find out where your small change could take you.

Record your ATM withdrawals. Using online banking will help you keep track of the money entering and leaving your account, but your worksheet will show exactly how each of your dollars is spent.

Once you have everything recorded, subtotal your income categories and your expense categories. Subtract the expenses from the income and you will be left with your net income. If your net income is a negative number, then your expenses are greater than your income. If you are left with a positive net income, then consider moving this money into investments or a savings account. Leaving your extra money in your regular account will only tempt you to spend more than you need to spend. Plus, by putting away a little money each month, you will be surprised at the end of the year by how much you’ve saved.

Step Four: Set Spending Goals and Adjust Your Budget

Keep track of your spending for a few months to identify where and how your money is spent. Once you understand your spending patterns, identify where you can afford to spend less. Set realistic goals and adjust your budget amounts accordingly. Can you spend just $20 less per month on groceries or eating out? How about entertainment? Can you decrease the amount you spend on electricity or heat? Small changes in your behaviour and spending can result in big changes to your net income at the end of the month. Choose a new category each month and challenge yourself to spend less on this expense. Even small reductions in spending can be difficult to make, so be proud of the changes you make.

After a few months of sticking to your new budget you will start to see real changes in your overall income. Put your extra dollars away in case of an emergency, or start saving for a major purchase.

Money Matters | Budgeting