Budgeting is a word most people dread. It has a bad connotation and implies pinching pennies and depriving yourself of nice things. Budgeting can be time-consuming and mentally tasking, so most people avoid creating a budget.

But a budget is the most powerful money management tool. It helps you dictate where your money should go and puts you in the driver’s seat of your finances. A budget is your permission to spend and live your life however YOU want. It helps you create a roadmap and action plan for your financial goals.

Everyone needs a budget, but not everyone has the time to maintain one every month. In this blog post, I will share some steps to create and manage a budget that sustains itself without having to track your expenses every month. If you’re the type that hates spreadsheets and budgeting apps or don’t have the time to create a monthly budget, this one’s for you.

List your income

Calculate how much income you earn from all sources. Calculate the average income you’ve received from the last six paycheques if your income varies.

List all your expenses

List all your monthly expenses. Review your last three monthly statements to ensure you don’t miss anything. Include other financial goals like saving, investing and paying off debt to your budget. Don’t forget to add things like eating out, self-care and pet care.

Budget to Zero

Write down how much each expense costs every month. Calculate the total of your expenses. Ensure that your total expenses do not exceed your total income. Keep adjusting your expenses until your Income minus Expenses equals zero.

Break your expenses into three categories

Allocate your expense under one of each of these categories:

Fixed Expenses: This is any expense that has a due date. Your bills (like mortgage, rent, electricity, insurance, etc.), subscriptions (Netflix, Spotify, iCloud), and memberships (gym, Costco, CAA) will fall under this category.

Variable Expenses: These are expenses that vary in the amount you spend each month.

Example, groceries, gas, clothing, self-care etc

Saving & Investing: This is money set aside for emergency funds, sinking funds and investing.

Open three bank accounts

Open three separate FREE bank accounts from three different institutions that will be used for each expense category. I prefer to keep my savings accounts in a different institution from my chequing account to help me keep my hands off my savings until I need it. Keeping your fixed expenses separate from your variable expenses ensures you don’t fall behind on paying a bill because you overspent in one area of your budget. Here are the type of bank accounts you need:

Account A - High-Interest Savings Account

Account B - Online Chequing Account - Fixed Expenses

Account C - Chequing Account - Variable Expenses (Main Account)

Set up each category of expenses to be drawn from its bank

Calculate the total for each expense category. Every payday, deposit the total amount for each category into its own bank.

Set up pre-authorized debits for your fixed expenses

Set up preauthorized debits for each fixed expense to get your bills paid automatically. You can do this by adding each bill provider as a payee in your bank and setting up recurring payments. Alternatively, you can authorize your bill provider to withdraw the bill from your account automatically. If you set up recurring payments from your bank, ensure the payment is set up to be withdrawn 3-5 days before the due date to allow the payments to clear from your account and avoid late payment fees.

Split your paycheque into three banks

You can take it further by splitting your paycheque to be deposited into your three different bank accounts. You can put in a request through payroll at work to split your paycheque into multiple accounts instead of one.

For example, if your total paycheque is $5,600, you can split it this way:

Account A - High-Interest Savings Account - ($1,050)

Account B - Online Chequing Account - Fixed Expenses ($3,200)

Account C - Chequing Account - Variable Expenses (Main Account) - ($1,350)

If your employer only allows you to split your paycheque into two accounts, you can split it into your main chequing and savings accounts. Once your pay has been deposited, you can transfer it to your fixed expense account.

Tips for creating a budget that works

Be realistic: We often try to create an Ideal budget instead of a realistic one. You tell yourself, I should eat out less, so I won’t budget for eating out, or you budget a low amount. But midway through the month, once you’re stressed out and don’t feel like eating what you cooked for the week, you end up ordering take-out and going over budget. Be realistic in budgeting for things you typically spend on every month even though you think it’s “wasteful.” Don’t set yourself up for failure. If you’re going to spend on an item anyway, budget for it!

Budget by paycheque: Most people get paid bi-weekly or twice a month. You should budget based on your pay frequency. Split your bills to be withdrawn closer to the date you get paid. Your expenses should also be divided evenly by each paycheque.

For example, if you get paid $2,000 bi-weekly, you should only have $2,000 worth of monthly expenses. You might have to call your service providers and shift a few due dates to make this balance out.

Keep a buffer: No matter how much you plan, there will always be unexpected expenses that come up, and you might go over budget in some areas. Keep a small buffer to account for unforeseen expenses or cover you if you exceed your budget.

Set up bank alerts: You can automate your finances without ignoring them. Set up bank alerts to notify you when deposits have been made into your account and when any withdrawal is made. You can also set up an alert for when your balance drops below a certain threshold to ensure you have sufficient funds for your bills and to avoid NSF (Non-sufficient Funds) or overdraft fees.

Create a sinking fund for yearly bills: Most people forget to budget for their yearly bills and then get hit hard when the bill becomes due. They end up with insufficient funds and use their credit cards to cover the expenses. Your yearly bills shouldn’t come as a surprise. To avoid this, set up a sinking fund (a savings account for a specific goal) for any bills charged once a year.

Don’t forget to budget for fun!: Your budget should be enjoyable. It shouldn’t feel restrictive. Ensure to budget for the things you enjoy and make you happy.

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