Monthly budgets remind most people of things like root canals; they dread and avoid them like the plague, which is exactly why most people are struggling with money. The harsh reality of life is that in order to get anywhere with it, you have to have a plan. That’s really all a budget is – a plan for your money! A debt-free monthly budget is a beautiful thing because it’s where you (and your spouse, if you’re married) are in the driver’s seat. Not the government, not the credit card company, not the bank, and definitely not a pay day lender. Here’s a look into mine and my husband’s monthly budget, and how we organize our family finances.
Before diving too deep into our budget, I want to emphasize the first and most obvious point to our finances, and that’s that we’re debt-free! That means we don’t owe anyone any money. Perhaps that sounds elementary, but many people misunderstand us when we tell them this, thinking that we simply paid off our student loans but still carry a credit card balance. We paid off all our outstanding debt, a total of $15,000 in student loans and credit card debt, from January 1st to May 1st 2016. Since then, we’ve built up an emergency fund, gone on a two-week European vacation, and lived our life.
I say this firstly to encourage those of you who are struggling with a mountain, or even a mole hill of debt. By tackling that beast early on in our marriage (2.5 months into marriage), we were able to set ourselves up for future financial success. However, our most important reason for paying off debt quickly and intensely was for us to have full control and say over where our money went. We hated the feeling of getting our paycheques and having to hand over a huge chunk of it to a credit card company, or to the Canadian government (in addition to the endless taxes we already have to pay). For us, being debt-free was the first step in reclaiming the right to our hard-earned money.
Every Right Implies a Responsibility
Once we were debt-free, and since no one else now had a right over any of our money, we were now faced with the responsibility of ensuring that we never go back into debt for any reason. In came the monthly budget…a systematic, organized plan for your monthly net family income. That means if you’re single, you’d only include what you make individually. If you’re married, you pool both your incomes together into a joint account, known as your family income (no separate accounts, married people!).
An organized monthly budget ensures that your basic needs (food, shelter, clothing, transportation) will be met, followed by your wants BEFORE you actually spend any of that money. Luckily, since my husband and I cash-flowed our wedding and honeymoon, we had become quite well-versed at working together with budgeting. You have a responsibility to steward your finances in a way that not only respects the time, energy, and effort you put in to get it, but also to nurture it, grow it, and give it. A monthly budget helps you do all of those things and more.
Categorize and Prioritize
When organizing your monthly net income (what you take home after income taxes), the first and most important thing you have to do is prioritize your life into categories.
- Tithes – As a Christian, my first priority is ensuring that I am paying my tithes, that’s 10% of my income that goes to my local church.
- Shelter – The next most important thing is shelter, so for us that means making sure we pay our rent on time every month.
- Groceries – A girl’s gotta eat! Be reasonable about what you need and want to eat. Of course, be healthy, but most importantly, EAT WHAT YOU BUY! The biggest mistake many of us make is we buy groceries and still eat out!
- Transportation – My husband and I deliberately chose an apartment that was right on the subway line, therefore we don’t have a car and our only transportation costs are two monthly metro passes.
- Communication – For us this entails unlimited wifi at home, and the cost of two iPhone plans. Every household is different in this area. Just be mindful of your consumption habits here and plan (or make cuts) accordingly.
- Miscellaneous – Everything else. This includes eating out, buying gifts, shopping, take-out coffee, going to the movies, buying clothes, buying home things…etc.
- Saving & Investing – Ensure that you have enough (a realistic amount) in the other categories before you set your saving and investing targets. As you’ll see in the chart below, we’re quite aggressive with our investing goals.
An overview of our monthly budget
For obvious reasons, I couldn’t reveal our monthly net income, but here is an exact breakdown of where our money goes by percentage. As you can see, we have organized our expenses into prioritized categories, and are living on only half of monthly income.
We live slightly north of downtown Toronto, which meant cheaper rent and more money in our bank account. Also, even while we were dating we decided that travel would be one of our priorities. If you can dream it, then you must plan for it. Our “General Savings” are for things like shopping for clothes or home decor – bigger, more expensive items outside of the allotted amount in the “Miscellaneous” category. As for “Investing”, we plan on putting that money into mutual funds in RRSPs and TFSAs; something we’re still working on getting set up before this year’s RRSP contribution deadline.
Creating a monthly budget really isn’t as complicated, intimidating, or even as time-consuming as people think. In fact, it’s quite freeing, especially when you don’t have any debt. It’s simply YOU telling YOUR money where to go, no one else. Of course, when you put debt into the equation, things look a lot different than what you saw above. More on that in another post.
If any or all of this feels overwhelming to you, or if you’d like some personalized advice and guidance to pay off debt, save more, or get your finances organized into a monthly budget, contact me, I would love to help you.
Here’s to living on half of what you make…