Budgeting basics

graph revenue expense

  • How long can I survive without salary ? (sickness, layoff,…)
  • Can I buy this house ? How long will I need to pay it ?
  • How much will this phone plan cost me ?

We all want to put our money where our mind is… Budgeting is the way to make it happen. If you have no clue where your money is going, how can you make plan for the future ? How can you buy what you need/want ? Can you handle any crisis that Life will throw at you ?

Overall, you can split your budget in a few categories :

  • Must pay : taxes, lodging, food,…
  • Nice to have : car, phone, tv, vacation,…
  • Investing/debt : savings, retirement, mortgage, student loan…

But in each category, the content can vary a lot… Food is mandatory, but it doesn’t cost the same to eat canned vegetable or grass-fed beef. You need a place to live… But do you need to live in a castle ? It’s nice to have the latest smartphone, but is it “necessary” ? Each & every decision related to your budget depend on your priorities.

What are the principles of budgeting ?

  • Know your expenses

  • Plan for the unexpected

  • Spend less than you earn (or earn more than you spend) :)

  1. Know your expenses

  2. You can track it manually, with a notebook or an excel file or you can use some website that will aggregate info from your credit/debit card or on which you will import bank statement. For example www.mint.com

  3. Plan for the unexpected

  4. Planning the unexpected seems counter-intuitive :) but it’s usually pretty simple, it can be split in 3 sub-categories

    • Non-monthly cost that are very easy to forget : insurance, utilities, fees (bank/card/membership)

    • Wear & tear : old car, laptop/phone, appliance to replace… This category is by definition harder to estimate. One method is to review all items that will need to be replaced in the future and estimate for each how long it will last & cost of replacement. Then you can divide the cost by lifetime to know how much to save per month. Another (simpler way), is to save a fixed amount per month and use it to replace things as they die.

    • Life accident : sickness, car being totaled, … Huge expenses that are totally unpredictable. To be able to handle this, you need insurances and an emergency fund

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  5. Spend less than you earn (or earn more than you spend)

  6. Now that you know how much you “need” per month, it’s time to make sure it’s feasible to spend this amount… If you earn less than what you need to spend, you have a big issue (or debt stacking up…).

    • Spend less
    • There are some quick-win, after examining all your expenses, you will find some useless costs : bank fees, insurances overlapping, unused membership,… Or you can refinance your mortgage
      You can then limit your waste : overkill cellphone/cable plan, food waste, electricity… For this you may need to change some habits: run all errands at once instead of driving few kilometers for a loaf of bread

    • Earn more
    • You can do one-time action : sell unused stuff on Ebay or Craigslist (see the Wardrobe uncluttering article)
      You can ask to get more shift at work or do some overtime (if possible). Or you can start a 2nd job or side hustle

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