For many people, the beginning of a new year is a time to reflect on their financial goals and develop a budget to help them save for the future.

There are hundreds of different tactics you can use to help yourself set aside the money you need to meet your future goals, you just need to pick one and stick to it. If you have bad credit, budgeting is especially important if you want to improve your score and be able to negotiate the best interest rates.

So how do you go about creating a budget and sticking to it?

Budgeting can be one of those things that many people struggle with, but it is an essential life skill to learn to set yourself up for success. We’ve put together an ultimate guide to budgeting that tells you exactly how you can save no matter your situation. Enjoy!

Monthly budget for bad credit car loan in toronto

Calculate How Much Income You Have

The first step in any budgeting process is calculating exactly how much money you have coming in the door every month.

This step is vital in establishing a budget, as you need to know how much money you’re playing in order to set amounts aside for different things. It is crucial that you are brutally honest with yourself about this step, and take into account only the income that you actually receive into your bank account, not the money that is taken off in taxes or other expenses before you get your hands on it. No one else needs to see this information, so if you fluff the numbers up, you’ll only be fooling yourself.

Many people in 2019 have supplementary forms of income besides their main salary or paycheque. These side hustles are not to be ignored when putting together your budget, as any income earned from them will contribute to your overall financial position. If these side projects are inconsistent and produce money for you in waves, see what you earned with them over the past 6 to 12 months and then calculate the average to get a reasonable estimate of what you can rely on.

Once you have a clear and honest picture of the money you have to work with every month, it’s time to do the much less fun but no less necessary step of calculating expenses.

Make A List Of Expenses And Prioritise Them

The other cornerstone of any budget will be accurately identifying and accounting for all outgoing expenses you have throughout the month.

Expenses count as any debt that you owe or money that you spend over the course of a month. Common expenses include rent, mortgage repayments, insurances, cell phone bills, internet bills, hydro bills, gas, transit passes, and more. Many monthly expenses are so ingrained into our routines that we hardly think about them when we pay them, which can lead to surprise lack of money in the bank when you look to see what you have left.

Add up all of the expenses you have throughout the month that you are personally responsible for. If you have bills that are only given every quarter or yearly, divide them by the appropriate number of months to get an estimate of what they cost you on a month to month basis.

Don’t forget to take into account various “extra” spending that may not necessarily feel like a bill or expense. These are things like going out to dinner, discretionary spending, coffees, online shopping, and drinks. These all count as expenses as well, but these are expenses that can be modulated, so keep them in a separate column to your immovable expenses. We’ll get to those next.

Pick A Budgeting Method That Works For You

As mentioned earlier, there are hundreds of different budgeting methods that people all over the world swear by to help them manage their finances.

These different methods rely on different skill sets to be effective, so you will need to take a hard look at what you know you can work with and what you feel like you might let slip. Some methods rely on being cash only, while some ask you to assign a task to every single dollar you make. As you can see, different methods will work for different personality types and levels of control desired. Here are some of the most popular budgeting methods that might be able to help you:

Zero-sum Budgeting

This form of budgeting requires you to perfectly match every incoming dollar with an expense so that the net difference between income and expense is zero.

In essence, this means you need to assign a task to every dollar you earn so you know exactly how it is being spent and can track your expenses with a high degree of accuracy. This form of budgeting works well for people who like having a lot of control and oversight over their finances. However, it also requires meticulous planning and commitment to your assigned expenses, which may not work for some people who do not work that way. It also would not be ideal for people whose income is not the same every month, as it would require a new zero-sum plan to be made every month, creating more work than is ideal for a budget.

Great for: People with a set monthly income who enjoy making comprehensive spreadsheets.

Move on: Anyone with a fluctuating income or who prefers a less data intensive method of finance management.

Pay-yourself-first Budgeting

This form of budgeting is a great allrounder that asks you to set aside all the money you want to put towards savings or debt repayments as the first thing you do when you get your income, and then assign the rest.

As with any other budgeting system, it’s important that you are setting aside money every month towards your financial goals, otherwise budgeting can seem pointless. Whether this is paying off a credit card or saving for a down payment, pay-yourself-first budgeting is a great way to get the rush of serotonin seeing you get closer towards your goal first thing every month.

This type of budgeting does require some care in ensuring you are setting aside enough money to make your goals attainable, but not so much that you will be left high and dry when it comes to paying your bills. Make sure you still have enough liquid cash to pay your monthly expenses, and then you can feel free to spend the rest of your income as you see fit.

Great for: People with set financial goals such as debt repayments or a specific savings amount.

Move on: If you tend to get carried away with credit card spending, which will negate any benefits of setting aside your money every month.

Envelope Budgeting

This old school but highly regarded budgeting system asks you to set aside all of your income to different expenses each month and set it aside as cash in an envelope.

The thinking behind this system is that, when you have a set amount of cash you know you have to work with for a specific expense, you will be more inclined to stick to it than putting everything on your credit card. If you go over in one category, you will need to take cash out of another envelope to cover the difference, which can make you think twice about extra spending. This is essentially a form of zero-sum budgeting, but for those of us who struggle to control our plastic spending and find cash to be more symbolic of our available funds.

Cash can be an annoying, and potentially risky, thing to carry around these days. That can make the original version of this budget inconvenient for many people in 2019. Luckily, there are many envelope method mobile apps available, which mimic the ideas behind the budgeting system but allowing you use digital cash.

Great for: People who see cash as more significant than credit card money and don’t want a complicated budgeting system.

Move on: If you are worried about carrying around cash or don’t see yourself using an envelope budgeting app every month.

50/30/20 Budgeting

This is an extremely popular budgeting method that has been adopted by millions of people across the world for its simplicity and adaptability.

Basically, you are asked to immediately parcel your monthly income into three percentages of spending; 50% of your income goes towards living expenses; 30% towards discretionary spending; and 20% towards savings or debt. This is a great method for people who don’t want to worry about assigning a task to every dollar as it gives you more freedom to spend your money how you see fit. It is also ideal for people who have a changing monthly income, as the percentages will stay the same despite the change in overall income.

Obviously, this budgeting system may not work for everyone due to their individual financial circumstances. For example, if you have thousands of dollars in credit card debt, but your living expenses are relatively low, only setting aside 20% of your income towards debt repayment would be far too low. Play around with the ratios until you land on one that works best for you and stick to it.

Great for: People who want a simple, no fuss budgeting system that works with their fluctuating income.

Move on: If you prefer more control and want to track exactly where every dollar spent is going.

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Constantly Update And Optimise

Once you have settled on a budgeting method, your work isn’t done. You should constantly be looking at your budget and updating it based on changing needs.

A budget is not designed to be an immovable, rigid system forever. Everyone’s situations and needs change fairly frequently, requiring updating and optimising to ensure you are still moving towards your goals. For example, you might move into a new apartment whose rent is higher than your previous place, requiring you to spend more on living expenses. You will need to account for where this money will be taken from, and adjust your budget accordingly. Similarly, you might finally pay off your cell phone and now have extra money floating around every month. You will need to decide if that money is best put towards savings, paying off debt, or Friday night drinks.

Ideally, every time your situation changes you should have a look at your budget and see if it still works for you to make sure you’re still saving in the best way possible.

Track Your Progress To Stay Motivated

Similar to dieting, tracking your financial progress is crucial to staying motivated and reaching your goals sooner.

Just moving the money around like your plan dictates every month is usually not enough to stay motivated to sticking to the system long term. Checking on your savings or debt repayments every month is a great way to see real results from your budgeting and inspire you to keep going to reach your goal. If you don’t pay attention to your goals, you may lose interest in budgeting as you lose sight of what you started budgeting for in the first place.

Make sure you set aside time every month to look over your goals and pat yourself on the back for getting one month closer to your goals. You’ve earned it!

Do you have a favourite budget method you use? Let us know in the comments below!

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