154 – Budgeting Basics: Creating a Plan and Sticking to It

Wayne Kay 00:04
Budgeting basics, creating a plan and sticking to it. That’s our topic today with the Debt Matters podcast, where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada.

I’m Wayne Kay. And in today’s show, budgeting basics, what are the four steps to budgeting? We’re going to talk about how to track your expenses, and different ways you can do that. What to do with financial goals – what should they look like? And some steps to take to make those goals a reality.

My guest today, Brenda Wood with Allan Marshall & Associates Licensed Insolvency Trustee from Dartmouth, Nova Scotia. Welcome back, Brenda.

Brenda Wood 00:48
Hi, Wayne. How are you today?

Wayne Kay 00:49
I’m great. Welcome back to the show.

Brenda Wood 00:52
Thank you.

Wayne Kay 00:52
We had fun for your very first time, and we talked all about credit scores and reports, but now we get to talk about the joy of budgeting. And a lot of Canadians have a hard time. They just hate the word even.

Brenda Wood 01:05
They really do. Absolutely. And the majority of Canadians don’t budget.

Wayne Kay 01:10
Really?

Brenda Wood 01:11
Really.

Wayne Kay 01:12
I find that shocking. I seriously do budget because raising a family and all the stress around money, we had to budget just to make it.

Brenda Wood 01:27
That’s right. And you need to have that. The issue is, that from what I’m hearing from most people that I talk to – that includes clients and friends and relatives, is that the problem is that nobody’s ever taught it to them.

It’s not taught in the schools, and it’s typically not taught in families. If you’re from a family where maybe money was a taboo subject and it wasn’t something that was really talked about too much – nobody’s learning about that.

Wayne Kay 01:52
Yes, that was kind of our family. My mom was like, yes, just go have fun. Don’t stress about this stuff. Just don’t worry about it. Everything will be fine. Go have fun.

Thank God my wife’s family was not like that. And so it’s been a wonderful blending of our two families so that I could learn a lot and then be able to share. So I do get that – it’s never taught, but with all of the tools that are available, you have got to think we’re getting better at it.

Brenda Wood 02:22
I hope so. And I know that from teaching it for the last 25 years or so, the tools that have become available to people have made it so much simpler and so much easier for people. And it can be anything from writing it down on a piece of paper to having an app on your phone that keeps track of everything for you.

Wayne Kay 02:39
Well, I like that you’ve broken this down to four simple steps. So let’s dive into what four simple steps are when it comes to budgeting.

Brenda Wood 02:48
The four simple steps when it comes to budgeting are preparing to budget, actually creating your budget, implementing that budget, and then reviewing that budget. Those are the four steps.

Wayne Kay 03:01
Well, that was like 15 seconds. We’re done.

Brenda Wood 03:05
Well, there’s a whole lot into each of those steps. Each of those steps requires you to do something,

Wayne Kay 03:11
Right, okay. So number one again, was preparing to budget.

Brenda Wood 03:16
That’s correct. Preparing to budget.

Wayne Kay 03:18
What does that mean? What does that look like?

Brenda Wood 03:18
So how do you prepare to budget? We’re not even talking about putting pen to paper yet or putting, you know, getting into your spreadsheet. It’s just looking, pulling out your bills, having a look at those bills and figuring out what do my expenses look like? That’s part one. So part one is looking at those bills. So you can break your expenses down into a couple different categories.

Well, three different categories. So one is your easy expenses. So when I say an easy expense in your budget, what do you think?

Wayne Kay 03:49
Of an easy expense? My phone bill, my mortgage, all the things that.

Brenda Wood 03:56
Right. Everything that comes up monthly. You have your mortgage or your rent, your phone, your cable, your Internet, even your groceries and your gas. You probably have a pretty good idea of what those look like every month.Those are easy expenses. You’re going to want to think about what those look like.

Then you’re going to want to start thinking about what we call periodic foreseeable expenses. So in English, what that means are expenses that you know are going to happen, but you don’t necessarily put any money aside for them all the time.

A water bill is a great example. For example, my water bill isn’t due. It’s only due quarterly. I don’t pay it every month. So I have to think about what is that quarterly bill going to look like? And in my monthly budget, I set aside enough money that when the bill comes in quarterly, I’ve already paid a third of that each month up until the time that it’s due.

That’s one example of a periodic expense that’s foreseeable. Another really great one is what I call a budget within a budget. And that budget within a budget is for things like gifts, car maintenance, things like that. So you should be sitting down thinking about how much do I spend on gifts in the run of a year? If you have a list of people you buy for birthdays, Christmas, Easter, things that you would spend money on when it comes to gifts.

Get an idea of how much you spend per year and then divide that by twelve and make that part of your budget. So if you spend $1,200 a year on gifts, then you should be setting aside $100 in your budget to go toward gifts every year. So when Christmas rolls around, your, you’re not stuck going, where am I going to get this money from? I guess I’m not paying my power bill this month.

Wayne Kay 05:34
Exactly. And that happens. Okay, perfect. I like where you’re going here.

Brenda Wood 05:39
Well, the other one is periodic, unforeseeable expenses. That’s all the stuff that throws your budget into a tailspin. Those are the things like, oh, my gosh, my car broke down, or I need new brakes, or the dog got sick and I have a vet bill. Or maybe suddenly someone’s sick or someone can’t work, or you have some home repairs that you’ve got to do, your water tank goes, whatever.

You want to start thinking about what might those surprise things be that will happen to me during the year that I could potentially be setting some money aside for. So that when that surprise happens, I’m not stuck with having to use credit, for example, to deal with it. That’s how you can break down your expenses.

The other thing I suggest to people is that when you’re preparing the budget, you should be looking at things like, what does my phone bill look like? In this day and age, lots of people are paying their bills, pre authorized debit. So your phone bill, your cable bill, all comes out of your bank account automatically. You don’t think about it a whole lot. But you really do want to have a look at that bill at least a couple times a year and make sure that when what you’re paying for is something that you still require.

For example, if you have something on your cable bill, a specific tv show –  my kids, for example, love the WWE, and for years they had to have WWE on our cable, and then suddenly they stopped watching us. But it took me four or five months to go, oh, right, we’ve got that WWE channel on there, and that’s costing $12.99 a month. So you can call them up and get rid of that.

Those are the things that you should be checking on. And insurance is another great example. You should be, you know, once a year, once every couple of years, call around, see if you can get a better deal on your insurance. Those are the things that might help reduce your costs.

Wayne Kay 07:30
Perfect ideas. And what about like, when it comes to actually tracking these expenses? Where are we doing this? Are we using fancy software or pen and paper?

Brenda Wood 07:40
You can do whatever you’d like, whatever feels comfortable for you. So one of the reasons people will say to me, well, why do I have to track my expenses? Why is that important? And what I often say to people is that you can write down as many budgets as you want.

We talked about preparing your budget. The second step is creating that budget. So actually putting pen to paper or using an Excel spreadsheet or some fillable form that you can find on one of our websites, those are the things that you can find on our www.Wecanhelp.Ca.

You’ll find fillable forms that’ll help you create that budget sheet. And once you’ve created it, you could create twelve of those. But if you’re not tracking your expenses and you’re not watching where the money is going, then that budget doesn’t really mean anything because you’re not accountable to yourself for that.

So if your budget for groceries is $500 a month and you’re not tracking, maybe you’re spending $700 a month. Maybe you’re only spending $300 a month. Who would know if you’re not tracking the expenses? That’s why it’s so important and it helps you keep yourself accountable and then make sure that you don’t overspend.

When you’re tracking your expenses, you can write it all down on paper. You could have a little spreadsheet that you’re going to keep tracking your expenses in. There are lots of apps for your phone that you can use now.

There’s lots on our website, www.Wecanhelp.ca. Lots of fillable forms that help you track what your expenses are. I suggest to people that they don’t leave it until the end of the month. If you leave your tracking to the end of the month, it becomes a chore. And if it’s a chore, guess what? We’re probably not going to do it.

I usually suggest doing it once a week. So set aside a day. Maybe it’s Sunday at 7:00 you decide, I’m going to sit down with my significant other and I’m going to figure out what we spent this week. What did our week look like? You’re going to catch stuff when you do that.

If you track your expenses for the week and you realize wow. My budget said that we had $100 for eating out and we ate out twice this week and we’ve already spent $80. Well, now, you know, you’ve only got $20 left of that budget for the rest of the month if you want to stick to that budget. By doing that weekly, you’ll be able to catch things much quicker than if you leave it all to the end of the month.

Wayne Kay 10:02
Right. And what happens, you’ve done the plan, you thought about the plan, you have the plan. Now you’re putting it into action as well. What happens to you psychologically when you actually succeed at this plan?

Brenda Wood 10:17
Oh, how great does that feel when you look at it at the end of the month and you go, look, I kept track. I didn’t overspend and I managed my income really well. And that is a real psychological win for people and it makes it so that they want to continue to do it. The flip side of that is, what if you tracked and you said, gee, I was wrong. I thought I spent $500 on groceries and I spent $600.

Well, some people will throw their hands up and say, well, this budgeting thing doesn’t work, but what I tell people is don’t, don’t get frustrated by the side of the budgeting where you go, I was wrong. Just look at it as a learning curve.

You’re going to have to track for probably four or five months to really get a good idea of what you’re spending so that you are going to be constantly recreating that budget until you’re really used to what those expenses look like. But once you get there, that budget’s going to work for you really well and you’re only going to have to tweak it here and there.

Wayne Kay 11:14
As I said, once you get on this path and you start seeing the success that’s there with it, you just feel great because most Canadians, as you mentioned, don’t do any of the budgeting. And it’s always shocking to me.

Every single time I watched any of those debt type shows, the amount of people that have no clue where things are going, where they’re spending money or how much is coming, how much is going. No idea. Living in this overdraft world and living on minimum payments, you’re not going to be that way. And there’s just a pride that can happen to you when you, when you feel that.

Brenda Wood 11:50
And it’s going to keep you from dipping into your credit too much. Using credit as a form of income.

And that’s where we run into trouble. We’re not paying attention to how much we’re spending. And especially in this day and age, where almost everybody, lots of people use, do their purchases electronically. So you either do it with your debit card or your credit card. You’re not really paying attention to what you’re doing. And at the end of the month, oh, gee, I spent $50 – $1,000 more than I actually have coming in, and I put it all in credit.

Well, now you’ve got to have a budget for paying that credit back and a budget for all your regular spending. And guess what? Sometimes people get themselves into trouble doing that.

Wayne Kay 12:30
I have to tell you, I’ve just taken up this whole tapping with my phone connected to a credit card, and I am not loving it because it shocks me when I then go look at that bill a week later, two weeks later, and go, oh, my goodness. And then I have to take it out of the bank account.

And I don’t know. It’s just a psychological thing. I don’t like it. I don’t even care about points. I’m one of those people. I’d rather just have this stuff paid for.

Brenda Wood 13:00
Yes, you really have to pay attention. I can’t tell you how many times I’ve been in the grocery store or at some other store and I see people tapping, and I know for certain they’ve tapped and walked away, and they have no idea how much they just spent.

Wayne Kay 13:13
Well, I know I’m paying attention, but as it adds up, it’s like, oh, I don’t like some of these easy things, and I don’t know. But yet they say they’re safer for us. They don’t give you the numbers, etcetera. But it’s just one of those things.

I’ve just usually been paying with my debit card, and I’ve been happy with that. So all of a sudden, you got everything set up now, financial goals.

I mean, we got to have something good to work towards. How do you figure that out?

Brenda Wood 13:40
That’s right. When you have a budget and you’re keeping track and you’re reviewing that budget periodically, you should be able to get to the point where your budget is balanced. And the idea here is when you create your budget, you’re going to look at, do I have a deficit? Am I in the negative? And am I spending more money than I have coming in?

And if you do, there’s some strategies for dealing with that. And you can look at our website to figure out what those strategies might be. But to your question about setting financial goals, you can do that when you have savings as part of your budget or if you have a surplus in your budget.

One of the best ways to set financial goals is to be really cognitive of how that goal is going to be set up. Most people set up their goals – you’ve probably been to, you know, parties, backyard barbecues, and everybody’s talking about, oh, I’d like to go on vacation, or, we’d like to redo our backyard or our basement. And then a year later, you’re at the same little party and they’re going, oh, I’d like to have a vacation. I’d like to fix my basement, those kinds of things.

The reason why people do that is because they’re not specific enough about their goals and they’re not writing it down. So we always suggest that you actually be very specific about what that goal should be. And so I suggest what’s called a smart goal. So have you ever heard of smart goals?

Wayne Kay 15:01
No, I haven’t.

Brenda Wood 15:03
All right, well, smart is an acronym. So smart stands for the s is for being specific, the m is for being measurable, the a is for making it achievable, the r is making it relevant, and the t is making it time bound.

For each goal, you want to go through that acronym and figure out what those things mean for you. Let’s just use the example of I always want everybody to have a savings, and it doesn’t have to be $50,000 in a savings account. You can always start small.

Let’s say you decided that your goal was, I want to save. I want to have a little savings. So if you wanted to be specific about that, you want to write down, what’s your mission statement? Well, I want to have savings before an emergency.

That’s being specific. That’s your mission statement. How would you measure that goal? So maybe you said to yourself, well, I’d like to have $1,200. I like to put $1,200 aside.

So, great, now you’ve measured it, now you’ve got a $1,200 goal. How do you make that goal achievable? So it can seem overwhelming. If you’re looking at large sums of money that you want to do something with, that can seem really overwhelming and maybe not achievable, but it’s achievable if you break it down.

If you said to yourself, well, I wanna save $1,200 in a year, and I get paid biweekly, so that means I get 26 pays a year. So I’d only have to set aside $46 a pay in order to achieve that goal of $1,200. So that $46 seems a lot easier than $1,200. You want to make sure that that’s achievable and that you’ve measured the goal, and then you want to make it relevant.

So relevance means it’s important to you. If you’re in a relationship with someone, sometimes the goals won’t be met if you’re not on the same page. It has to be relevant to the two of you. If you have a goal on your own that you’re doing on your own, it has to be relevant to you.

It can’t be something that your friend or your neighbor said, hey, you should be doing this or you should be doing that. It has to be something that you specifically want to achieve and that’s important to you. That’s the relevance part of it. And then the final one is making it time bound. So you want to make sure that you’ve got a timeline in mind.

When will you have achieved this goal? So that’s where our example of $1,200 where the twelve months comes in. So $46 a pay for a year, that’s the time bound and makes it a lot easier than trying to figure out how am I going to save $1,200.

Wayne Kay 17:29
Absolutely. You just broke it down and made it simple. And you can’t even do that without the first steps that we talked about, figuring out the expenses, where the money’s going and doing all the budgeting. So it really shows how step by step, we get to this point where then you start growing that wealth.

Brenda Wood 17:47
That’s right. And that’s really important is to tie those two things together without having the budget. You can’t have those goals set aside because you don’t have any ability to determine how much am I going to decide, when am I going to do it, and how does that work within the money that I have coming in?

Wayne Kay 18:02
And when I say wealth, wealth means something different to everybody, but knowing how much people don’t have savings, like there’s a number that just blew my mind when I saw it. How many people don’t have that extra $1,000. If something was to come up, you could feel super wealthy by having that in there.

So, I mean, it really does play. We talk about the psychological part of it as well. It really does make a difference.

Brenda Wood 18:29
It does. And imagine how great you would feel if you knew, if my car breaks down, I’ve got some money set aside. Not, I’m going to have to scramble and figure out how I am going to deal with that.

Wayne Kay 18:40
Absolutely brilliant, brilliant information. This is great. Anything else we need to know before we let you go?.

Brenda Wood 18:46
Other than just keep on it. If you fall off the wagon, so to speak, and if you stop budgeting or stop tracking, it’s never too late to go back and start doing it again. So just make sure you keep on it.

And if you’re looking for more information, just go on to our website, www. Wecanhelp.Ca. And there’s all kinds of fillable forms, all kinds of information on budgeting, lots of other podcasts and lots of other blogs on how to deal with this stuff.

Wayne Kay 19:14
I appreciate that. Brenda Wood, a pleasure. Thank you very much for being on the show.

Brenda Wood 19:18
Thanks, Wayne.

Wayne Kay 19:20
Well, as Brenda just mentioned, you can go to the website wecanhelp.ca.
That’s where you can learn more about getting a free consultation or more information with Allan Marshall & Associates Licensed Insolvency Trustee.

Well, that’s it for today’s Debt Matters podcast. Now make sure you subscribe wherever you get your favorite podcast from. If you know somebody who’s having financial trouble, please share our website with them. You can always check out debtmatters.ca. Thanks for listening.