To budget your money means to plan out how much money you have and how much of your money you spend on certain things.
If we have money, why can’t we spend it until we run out and then wait for more?
Budgeting your money is important because it is a way to make sure that you have enough money for your basic needs such as food, clothing and shelter. It will help you to avoid owing money to friends, credit card companies, or banks. It can allow you to put money away for a big purchase like a vacation, a piece of furniture, or something else that you want or need.
In order to do this, you have to “live within your means” which means you have to make decisions about where to live and where to shop based on how much money you have. You can not spend more money than you have.
Let’s talk first about basic needs and what that means in your life:
- Food → groceries from the store. You need a variety of food types to help you stay healthy.
- Clothing → clothing that is suitable for the weather, your job, etc.
- Shelter → this usually means paying rent. This is something that is very important to maintain and to pay every month. Unless you find a different living situation you cannot adjust this on a daily basis. With food and clothing, you can often shop at a cheaper grocery store, shop for things on sale or buy second-hand clothing to reduce your costs. Not paying your rent can get you evicted and you will have no where to live.
Before anything else, you need to put aside money to cover these costs.
Creating a Budget
Now that we have talked about why it is important to budget your money, let’s look at how you create a budget.
A budget is a document that lists what your income is every month, and what you spend your money on each month. Ask someone you trust to help you plan your budget. You can use the Personal Budget Plan template provided. Your monthly budget should be updated at least once a year or as changes occur.
It is simple, so keep it simple.
- First, at the top of the page write down all the money you bring home each month. This could be from:
- A job
- A disability pension (ODSP in Ontario)
- An inheritance
- Help or support from a family member
- Then, write down everything you spend money on each month. See the article “Knowing where you are spending your money” for easy instructions on how to do this.
These include both fixed costs (things that cost the same each month, such as cable, rent and phone) and variable costs (costs that will change constantly such as food, going out). Most people remember their rent payment but often forget the newspaper they buy on their way to work each morning.
Record how much you need for your basic needs. These include rent or other housing costs, food, transportation, clothes and phone. This can be a little more complicated than it sounds. Your basic needs are necessary for survival but how much you spend on those will determine how much money you will have left for everything else:
- Going out – entertainment, special events
- Special items (household, personal)
- Hygiene items – toiletries
- Gifts for loved ones
- Anything else
Let’s apply what we know so far to an example:
Susan has $1500.00 of regular income every month. If Susan found a place to live that cost $1200.00 in rent every month, would that be “living within her means”?
Let’s calculate to find out: $1500.00 – $1200.00 = $300.00 – that takes care of one basic need – shelter. This would mean Susan would have $300.00/month for everything else.
So after paying her rent, Susan needs to grocery shop and spends $150.00 at the store on food for herself for the month – this covers a 2nd basic need: food $300.00 – $150.00 = $150.00
Susan also likes to have lunch with her friend every Saturday at the diner and spends about $60.00 a month from the remaining $150.00 – $60.00 = $90.00
Winter is coming and Susan needs a new winter jacket and clothes so she spends her last $90.00 on that. This covered her third basic need: clothing $90.00 – $90.00 = 0
It is now October 5th and Susan has NO more money to spend for the month.
So sometimes, you need to go over these steps again and again until you come to amounts that you are comfortable with. The exercise in step 3 of “Knowing where you are spending your money” might be helpful in figuring out how much to set aside for each of the spending areas of your budget.
The budget of a person who is living on their own or sharing an apartment and is receiving a disability pension (ODSP in Ontario) could look like this:
$20 to $30 per week in personal spending
$75 per week for groceries
$30 per month for laundry
$110 Bus metro pass per month
$30 phone bill per month
$40 cable bill per month
The remaining money is for rent, clothing and savings
Strategies to keep on Budget
Once you have your budget in writing, it is important to put it into action and make it work for you. Here are some strategies to keep you on your budget:
- If you have problems living within your budget, ask for help from someone you trust. Money smarts is a learned skill and there are many ways you can learn how to manage your money. A trusted staff, family member, friend or the Public Guardian would be good choices.
- Even if you can manage your budgeting yourself, it is always good to have someone take a look at your money situation every once in awhile (monthly or every 6 months) just to make sure that everything is going ok.
- Use a ledger or note book daily to record the amounts you spend and the amount of money you have left. This makes you aware of how your daily / weekly money is being spent.
- Be on the lookout for ways to reduce your monthly fixed costs.
- You can bundle your cable/home phone/cell phone/internet with one provider
- Look at your package with the provider. Do you need all the services such as call display, call waiting, or all the channels that you subscribe to on your cable?
- Compare prices with other providers and services. Shop around for the best competitive prices in regards to interest rates and between different cable and phone companies.
- Look for ways to save money on things you are buying. See the article “Simple Strategies to Help You Save Your Money” for ideas you could make use of.
- Take a look at your personal spending. Is something really necessary or is it just a habit? For example: An individual shares a 2 bedroom apartment with another person. For years, both individuals would buy the same newspaper on a daily basis. After this was pointed out to them, they decided to share the cost of buying one newspaper and put the money they saved away for something else.
- Some people need and appreciate a little more structure and help to enable them to save. Perhaps, lock up money in a box for major expenses (i.e. clothing, apartment needs, gifts, vacation) and give the key to a person you trust.
- An option many people use to ensure that their rent is paid is to set up the rent to be paid directly to your landlord from your pension allocation.
- Open 2 bank accounts. On one account (a co-signed account) your staff / parent would also need to sign for money to be taken out. On the other account, a personal spending account, you would be the only person who could take out money. For example, let’s say you have calculated a 4 week supply of spending money to be placed in the personal spending account. After each 4 weeks, the money would be transferred from the co-signed account into the personal spending account. This really encourages you to learn how to budget, but does not put at risk the ability to pay for basic needs such as rent and food.
- If you make bill payments by cheque and have difficulty remembering how to complete the cheque, have someone you trust fill out a sample cheque. You can copy from it each time you need to complete a cheque. If your writing skills are poor, have your trusted helper complete the cheque each time and you can sign it.
- Some stores and credit card companies provide an option to use a pre-paid card. You can only purchase up to the dollar amount that has been pre-loaded onto the card. This could help ensure that the needed purchase is made and the money is not spent elsewhere. A grocery store is a good place to use this.
- Motivate yourself to spend less than the amount you have put into your budget to spend. You want to be happy about how you spend your money. Include in your budget an amount you want to save for the month. Remember to reward yourself each month you achieve your saving goal. Go out for dinner or buy a shirt that you have been looking at.
- Some people find it helpful to use envelopes with different amounts of money that are set aside for different purposes. For example an envelope for groceries, one for clothing and another for entertainment.
- You could buy money orders payable to yourself for your weekly expenses and you could cash one each week. That way you would not have the cash easily available. However, you will need to pay extra money to get a money order.
- You could give your ATM card to a trusted person, without sharing the PIN number and only have access to the card once a week to do your banking.
- Consider opening a savings account that is difficult to access such as an account where you would need to first transfer the money into your chequing account in order to take it out.
- If you have a tendency to spend whatever you have quickly, you could divide your weekly spending money into two or more envelopes so that you are not tempted to spend it all at once. Doing this could give you money to spend throughout the week.
Whatever strategies you decide to use, they need to work for you. Everyone has different habits and ways of doing things. You need to believe that you can change that habit and that you will be better off by changing it.