Budgeting for the first time amid soaring inflation? Here are some tips
Chris Melnyk described the initial onset of inflation on his finances as a challenge.
But soon the Whitby, Ont.-based personal trainer was able to adjust his budget to account for the uptick in his expenses, and now he feels less stressed about the coming months.
Over the years, Melnyk says he's learned that instead of following a rigid spending plan, what helps him stay trained on his financial goals is checking his budget on a regular basis and making adjustments as needed.
"I found that being a little bit more fluid ... it becomes a lot easier to manage," he said.
As inflation continues to take its toll, some Canadians may also start taking a closer look at their spending habits.
In 2019, only around half of Canadians said they had a budget, according to a survey by the Financial Consumer Agency of Canada.
The FCAC said non-budgeters were twice as likely to be falling behind on their financial commitments as budgeters. Budgeters were also less likely to spend more than their monthly income or use credit for day-to-day expenses.
Not having a budget makes it difficult to take control of your finances, said Charity Oisamoje, a money expert and founder of The Finance Key.
"When you don't have a budget, you might actually feel overwhelmed by your finances," she said.
One of the reasons budgets or plans often fail is because people don't have goals in mind, said Money Coaches Canada financial planner Janet Gray.
It's harder to stick to your plan when you don't know what you're working towards, whether it's paying off debt or saving up for a down payment, she said.
Gray said instead of budget, she prefers the term "plan," as it has fewer negative connotations. After all, budgeting isn't only about restricting spending, but also about planning it, she said.
You can't set a spending plan until you know how much you're working with and what your costs are, said Gray. She suggests tracking your income and spending for a month to see how much you actually bring in and where it goes. With that information, and some goals in mind, you can then set targets and make your plan, she said.
Desjardins Group financial planner Angela Iermieri said these days, with so many automatic payments and subscription services, it's harder to track your spending.
Writing a budget helps you to visualize all these costs, she said, but you need to make sure you're not underestimating your spending.
"We have to be honest with ourselves when we set up a budget," said Iermieri.
There are a variety of budget plans out there, such as the 50-30-20 plan -- where half your money goes to necessities, 30 per cent to discretionary spending, and 20 per cent to debt and savings.
But Gray said what matters most is that your plan works for you. It should, of course, cover your necessities first, allow for a realistic but sustainable level of discretionary spending, and include saving and debt-paying -- though if you have high-interest debt like credit card debt you should focus on paying that down before saving, she said.
If you're overwhelmed by the idea of budgeting for the first time, Oisamoje said you should start simple. Use a ratio like 50-30-20, or another that fits your lifestyle better, and try to stick to it while tracking your income and expenses.
Eventually, she said you'll be ready to "graduate" to something more involved, like a spreadsheet or an app.
Oisamoje said including non-essential spending, or "fun" spending, is crucial for balance and mental health.
The discretionary spending is "the stuff that keeps you motivated to continue going on with that plan," Gray agreed.
Your plan also needs to account for seasonal differences, said Gray, such as extra spending around the holidays.
"A budget is not fixed forever. It can evolve," said Iermieri, adding that you should re-evaluate your budget and goals whenever your costs or income change.
Often people underestimate their expenses or fail to account for varying and unexpected costs, said Oisamoje. Those mistakes, plus overspending on non-essentials, are how the budget gets broken -- but it's not the end of the world if that happens one month.
"Just try to stick to it as best as you can. But don't be too hard on yourself."
Gray agreed, and cautioned not to use one misstep as a reason to forgo the budget altogether.
"It's not a sprint, it's a marathon."
This report by The Canadian Press was first published Dec. 8, 2022.
opinion | How much rent can you afford?
Many Canadians have continued to see an increase in their rental rates in 2023. In an column on CTVNews.ca, personal finance contributor Christopher Liew explains how to calculate how much rent you can afford.
With the spring break travel season approaching, those looking to flee the cold, wet Canadian snow for sunnier skies will likely be met with a hefty price tag for their getaway, with inflation and increased demand pushing costs up.
When selling a home, Canadians may be exempted from paying capital gains tax on a residential property -- if it's their principal residence. On CTVNews.ca, personal finance contributor Christopher Liew explains what's determined as a principal residence, and what properties are eligible for the exemption.
The Bank of Canada hiked its key interest rate by a quarter of a percentage point Wednesday, bringing it to 4.5 per cent. Here's a look at what the rate means, how analysts are interpreting it and what it could mean for consumers.
The federal government's latest TFSA contribution limit increase took effect as of January 1, 2023. Personal finance contributor Christopher Liew outlines how the government’s most recent TFSA contribution limit increase affects you and how to make the most of it.
Finding an affordable place to live in the territories, where housing has long been a challenge, is getting even harder, the Canada Mortgage and Housing Corporation suggested in a report released in December. In Yellowknife, the report said, the growing senior population, urbanization and strong labour market has pressured the housing supply.
Canada is suffering from a severe skills shortage in several key sectors, experts say, thanks to factors that include deficiencies in our education system as well as changing demographics. CTVNews.ca looks at some of the skills that will be most in-demand in 2023.
Bond portfolios took a beating in 2022 as interest rates climbed, but experts say investors shouldn't neglect bonds this year as the Bank of Canada nears the end of its rate hike cycle.