Budgeting is essentially an exercise in making sure you don’t spend more money than you have. Even though this sounds basic, it can be trickier than it seems, especially if you’re living on your own for the first time or have never had to manage your money before. Here are a few steps to get started.
Figure out how much money you have
You may receive an allowance from your parents, or perhaps you’re drawing from the money you earned over the summer or your part-time job. Whatever it is, get a handle on what the figure is every month. This is the total amount you have to spend on what you need and want for the next 30-odd days.
Prioritize your expenses
Your rent, transit pass, phone bills, and utilities are all monthly expenses you must account for and generally stay the same monthly. These are called fixed expenses and are easy to account for since the amount doesn’t change. Subtract those from your total amount first.
Add in other necessities
Food, personal care and clothing are your variable expenses—categories that can still be classified as “needs,” but the amount spent changes from month to month. You usually have some control over these expenses—in a tighter month, you can opt for simple meals with fewer fancy ingredients or drugstore shampoo instead of a fancy salon brand.
Include one-off purchases
Some costs don’t quite fit in the above categories. For example, you’ll need to buy textbooks and course materials before classes start. These are occasional purchases that happen once or twice a year. The good thing is that these buys are one-and-done—you won’t have to worry about them again for the rest of the semester.
Don’t forget to budget for fun
It’s hard to stick to overly restrictive budgets. When you don’t give yourself some room for the occasional coffee, dinner out or movie tickets, you risk missing out on some fun experiences or overspending when presented with the opportunity. Giving yourself some financial breathing room will allow you to indulge without guilt.
Put some money aside
It’s good practice to avoid spending every dollar you make. Ideally, you should save a bit every month to start an emergency fund for unexpected bills and repairs. This will keep you from being caught short if you need to fix your car or replace a lost item. It can also help take the sting out of next year’s textbook buys.
Be careful with credit
Almost all of us have credit cards, and they can be a valuable and convenient tool to cover purchases without cash while building your credit. But don’t forget to cover that bill in full every month. Credit is borrowed money, and it’ll cost you in interest if you don’t pay it back.
Consider using an app
Apps can help you track your spending and offer suggestions on how best to use your money. Once you’ve set up the system (usually by connecting all your bank accounts and credit cards), it’ll automatically track your spending and money flow. There are some drawbacks—for example, it won’t track what you do with your cash, but overall, it can be an excellent alternative to manually keeping an eye on your money.
Taking time out every month to check your spending and pay your bills is a necessary part of living on your own. This way, you can monitor your finances and ensure you have the money you need to cover the things you need most, worry-free!
Embark is Canada’s education savings and planning company. The organization aims to help families and students along their post-secondary journeys, giving them innovative tools and advice to take hold of their bright futures and succeed.