The basics of building a budget.
There’s a new series you want to watch, but it’s only available on the one streaming service you’ve yet to subscribe to. The monthly fee seems minimal, so you sign up with the intention of cancelling after you’ve binged the series over a two-day period. You forget to cancel, and a charge appears on your bill every month.
Canadians love their streaming services! But monthly subscription fees can add up over time. By creating a budget, you’ll have a better view of where your money is going and how it can help you reach your goals. No dollar should be spared in your detailed tracking.
Step 1: Set your goals.
Before building your budget, it’s important to define your short- and long-term goals. If you’re not sure what those goals are, it might help to start with a pen and paper. Expanding your motivational mug collection would go into the short-term goals column, while things like saving for a home or car would fall under the long-term goals column.
But if debt repayment is part of your plan, it can be a good idea to prioritize paying down any high-interest debt, depending on your goals. Your record for paying off debt is an important factor in your credit score, which you might rely on to rent an appartment, lease a car or get approved for a credit card.
Step 2: Figure out what’s coming in, and what’s going out.
Your budget should include categories for your monthly income and expenses. An easy way to get a picture of these numbers is to look at the activity in your online banking account – how much did you earn in the last month? Was it enough to cover your expenses? Did you have to rely on your overdraft to cover the extras?
The goal is to ensure your monthly expenses don’t exceed your income so that you’re able to live within your means and pay off any credit card debt in full by your statement due date. If you find certain spending categories are eating up a larger part of your income, determine which of your expenses are essential, like internet and groceries, then make note of the things you can cut back on (upgrading your TV-streaming subscription to watch your favourite home renovation show may not be essential, just saying).
Once you’ve budgeted your expenses, you can figure out the right amount to set aside for an emergency fund. Saving as little as $50 a month can help put you on track to handle unexpected expenses.
Remember, if you’re carrying any credit card debt, your financial goals will help you determine if you should pay that down first. Aim for monthly instalments that add up to more than the minimum payment. Once the balance is paid off, your budget will come in handy when planning for future credit card payments.
If you need some help figuring out how much to set aside for debt repayment and savings, the Financial Consumer Agency of Canada (FCAC) has a helpful calculator designed to do just that.
Step 3: Pick your tool.
There are plenty of budgeting tools you can use to help you manage your money. You might prefer a digital tool, like this one from the FCAC. It’s easy to use, and your data can be exported into a spreadsheet for regular tracking. Or you may be loyal to your pen and paper (we’re talking to you, bullet journalers), and that’s OK!
Once you’ve inputted your expenses in the method of your choice, be sure to log your spending by noting each transaction date, category and merchant. You can do this in real-time, or at the end of each month by pulling up your credit card statement, account summary or past receipts.
Tip: Credit card features can help you stick to your budget.
For example, if you have a Capital One credit card, you can access a detailed list of your transactions through online banking. This comes in handy when you’re tracking last month’s expenses (and it helps to view your transactions in one place).
Step 4: Put your budget into practice.
What’s the number one thing you should do on your pay day? Pay yourself first! Make sure you transfer your funds to your personal banking account, then, make any budgeted payments toward your debt.
Getting in the habit of checking your budget before making a purchase is key. If you use your credit card as your primary payment method, your budget can prevent you from spending more than you can afford.
Tip: Try to make larger purchases at the beginning of a billing period, so you can give yourself a little more time to pay them off in full (and before that interest kicks in).
The hardest part of building a budget is getting started. It takes time to set goals, gather information and create new habits, but with a little effort, budgeting can become as oddly satisfying as popping bubble wrap.
* If Quick Check pre-approves a card, you can be sure we’ll approve your application, except in limited circumstances. Some of the reasons we may not approve your application, among others, include:
a. There’s been a change in your credit file information, personal information or financial status from the time you receive your Quick Check results to the time you apply for one of our credit cards.
b. You’re not at least the age of majority in the province or territory you live in.
c. Your application is flagged for fraud prevention.
d. You have an existing Capital One account.
e. You’ve applied for a Capital One account in the last 30 days or had an account with us that was not in good standing in the last year. In good standing means not past due, over limit, fraudulent, restricted, or part of a consumer credit counselling program or bankruptcy.
In some cases, we may not be able to open an account for you even though your application was approved. This can happen if we’re unable to verify your identity, or you don’t provide the required security funds if you’re approved for a Secured Mastercard®.