13 June 2022 |
There’s no reason why you can’t set yourself a solid but realistic monthly budget.
Maybe you’d like to take a vacation in the sun but can’t seem to put enough money aside.
Maybe you have debts you’re slow to pay off because your pay cheques seem to evaporate faster than rain on asphalt.
Whatever your situation, a monthly budget is the perfect tool for achieving your financial goals.
Why make a monthly budget?
The fact is, everyday expenses are often the most pernicious! Small expenses of $10, $15 or $20 add up very quickly. Keeping track of these expenses on a monthly basis will make it easier to rectify the situation.
There’s also nothing to stop you from combining a monthly budget with an annual budget, to which you add expenses that recur less regularly.
Which models to choose?
There are plenty of budget templates to choose from. Basically, all you need is the total amount of your after-tax income and an estimate of where that amount will go. Some people have hyper-detailed Excel files covering every single expense, while others prefer simpler, more flexible models. Here are some of the most popular models.
The 50-30-20 budget
The 50-30-20 budget is a relatively simple model, ideal for those who don’t want to list all their expenses. In practice, it involves allocating 50% of your net income to your needs, 30% to your desires and 20% to debt repayment or savings.
But be careful not to confuse your wants with your needs! There can be a fine line between the two. What’s more, the 20% earmarked for savings or debt repayment only applies to debts that are not urgent.
For example, if you have a student loan and repay an automatic amount each month, this amount is part of your needs. If you want to pay off these debts more quickly, the extra amount will be included in the 20%.
The 80/20 budget
This simpler model allocates 20% to savings and 80% to everything else. It’s ideal for those who want to save first and foremost without necessarily scrutinizing their spending. This one is not particularly recommended if you need to structure your spending.
A simple way to put this budget into practice is to program a direct debit from your account corresponding to 20% of your net income every payday. This amount can be put into a savings account or any other type of investment that suits you.
If you want to save even more, feel free to convert the 80/20 into a 70/30 or even a 60/40. The idea is to save as much as possible so as not to be caught out when the going gets tough.
The envelope system
As the name suggests, the envelope budgeting method involves having physical envelopes into which you put cash as you cash your pay cheques. This method is particularly interesting if you work in the service industry and regularly receive tips.
However, this method can also work in the digital age if you create a few different savings accounts. For example, you could have a “home and car” account and a “groceries and restaurant” account.
You can also combine the two methods by withdrawing the total amount you allocate to a specific envelope. This could be an envelope to group all your utility bills together or an envelope for your wardrobe renewal budget.
The number of envelopes and the type of expense are up to you! You can use the other budget categories as inspiration for your choices.
The 5-category budget
This is a very common and slightly more detailed budget template. It will help you see where your money is going without you having to spend hours analyzing all your expenses. The five categories are housing, transportation, other living expenses, savings and debt repayment. We recommend that you allocate 35% of your budget to housing, 15% to transportation, 25% to other expenses, 10% to savings and 15% to debt repayment.
This type of budget is ideal for people with a car and a fairly stable lifestyle, with debts that are present but under control. Also note that, as with the 50-30-20 model, the amounts allocated to your car or mortgage payments go into the transportation and housing categories respectively. If you want to pay off these two items more quickly, the amount allocated goes into the debt category.
The “essentials first” budget
This rather simple model is ideal for those who have to spend a lot of money on debt repayments. The principle is as follows: each time you make a payment, you must first repay the amount that is to go towards paying off your debts. The remainder goes towards your other expenses.
This way, you make sure you don’t lose control of your debts and end up racking up tons of interest.
Which budget model is best?
The best budget model is the one that fits your reality! You’ll need to take into account your spending habits, your financial health and your goals.
If you don’t own a car and use mainly your bike and public transit, you probably won’t need to allocate 15% to this method, as the 5-category budget suggests.
Similarly, if you live in a big city with a low salary, you may need to allocate a higher percentage to housing.
Finally, keep in mind that it’s better to choose an imperfect model that you can follow than an exhaustive one that you’ll quickly abandon! Don’t hesitate to start with a simpler model and make it more complex as you become more comfortable with the art of budgeting.
And don’t forget, for any unforeseen circumstances; Argent Maintenant is at your disposal if you need money urgently.