Date

December 8, 2021

6 reasons why budgeting is important

Budgeting is a balancing act. It’s a plan you create to make the most of your income. A budget can help you live within your means, balance needs and wants, and warn you when your debt load is hindering your goals.

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6 reasons why budgeting is important

Budgeting is a balancing act. It’s a plan you create to make the most of your income. A budget can help you live within your means, balance needs and wants, and warn you when your debt load is hindering your goals. But a budget isn’t a financial tool that you can set and forget. As your financial circumstances change, your budget should change too. The good news is, creating and maintaining a budget is not as difficult, time consuming or even scary as you might think.  - thumbnail

Budgeting is a balancing act. It’s a plan you create to make the most of your income. A budget can help you live within your means, balance needs and wants, and warn you when your debt load is hindering your goals. But a budget isn’t a financial tool that you can set and forget. As your financial circumstances change, your budget should change too. The good news is, creating and maintaining a budget is not as difficult, time consuming or even scary as you might think.

This episode of the BDO Financial Wellness Podcast features BDO Licensed Insolvency Trustees Jasmin Brown and Ron Gagnon, who share (at least) six very good reasons why you need a budget in your life. To learn more about our conversation with Jasmin and Ron, read the full transcript below.

Financial Wellness Podcast Transcript

Tera:

Hi, you’re listening to the BDO Financial Wellness Podcast, and I’m your host, Tera Beljo. And in this episode, we’re going to talk about budgets. Now, before you run away and hit that stop button, I want to stop you, because this was a really great conversation. And it all started from reading a piece about the most common budgeting excuses people make. Now, if you’ve never had a budget, or if you’ve tried budgeting and given up, which I’ve done myself, you may have used one or more of these excuses yourself. For example, “I don’t make enough money to budget” or “I want to budget, but my spouse doesn’t want to. So why bother?” Another one I have seen is, “Tracking my spending takes too much time.” Or, “Budgeting reminds me of all the things that I can’t afford.”

And the truth is, that budgeting isn’t always easy or fun, but a budget is one of the best resources you have for tracking your spending, taking control of your income, even paying off debt and achieving long-term goals. So, in this episode, I had the chance to sit down with BDO Licensed Insolvency Trustees, Jasmin Brown and Ron Gagnon. And we had a fantastic and sometimes fun and funny conversation about budgets, and why you need one, and how to create one, all the good things that come from having your own budget, as well as how to broach the subject of budgeting with your partner, and what that can entail. So, without further ado, let’s just dive right in.

We talk about budgeting a lot, not just on this Financial Wellness Podcast, but also on our blog, in videos and during media interviews. But we also know that even though we encourage people to have a budget, many people just don’t want to do it. Maybe they feel it could be too rigid or too confusing, or they just want to not be bothered. How would you convince someone that a budget is worth the time and effort, Jasmin?

1. A budget helps you control your spending. 

Jasmin Brown:

So, I usually pitch it to people as giving them control, because everyone wants control of their financial situation. If you’re not tracking, and you’d be surprised, but many people don’t even know what they have coming in every month. Certainly, don’t have an idea of what’s going out. So how can you really know what’s going on? So, if you start paying attention, figuring out what’s coming in, what’s going out, tracking in detail, you can start meeting some financial goals. You can get your spending under control. You can get the financial situation that you want, but you do have to pay attention in order to get there.

Tera:

And Ron, would you say that it reduces stress when you’re doing like, it may be stressful when you sit down to do it, but in the long run, it reduces stress?

Ron Gagnon:

Absolutely. Because you figure out exactly where your money’s going, and you usually can identify pretty quickly things that should be avoided, and how to get some spending going. So, yes, I think it would be a very calming situation, whether you’re alone or in a couple.

Choose a budgeting method that works for you.

Tera:

And what about types of budget? I know there’s apps out there, but what about the people who want to like sit down and write? Are there things they can do there? Like what types of budgeting is there, or budgets are there?

Ron Gagnon:

You can, everything is out there. You can choose whatever you want. I think you want to identify your expenses. You want to identify your fixed expenses versus those that vary. So, you want to break it down in those categories, because you can easily influence one than the other category. And I think there’s a whole bunch of different ways that you can look at it.

Tera:

What about you, Jasmin?

Jasmin Brown:

Yeah. I always tell people to find something that works for them, right? Like me personally, I like to have a pen and paper, because I think about things as I write it down. Some people like an app, because it’s always with them. Some people prefer a spreadsheet. So, I think the important thing is don’t force yourself into a method that you’re not going to be committed to using. Figure out what you can enjoy doing, what you will actually go back to every month, because practically speaking, you want it to be functional. You want it to actually work for you.

Ron Gagnon:

And you’re not actually…

Tera:

It’s a living document. Like it’s not something you just set and forget. I keep saying this over and over again, but go ahead, sorry, Ron.

Ron Gagnon:

No, I’m just saying, it’s never going to be fun, but it has to be something that you’re willing to do. It has to be accessible and not a burden every time you go and revisit it.

2. A budget helps you make the tough money decisions. 

Tera:

And what are some of the benefits of doing it? Jasmin?

Jasmin Brown:

Like I said, control for me, just knowing where it’s going. And lots of people lump things together. They don’t go into specific categories. And to me, that’s not really giving you the information if you want to be able to use it and use the knowledge to make different decisions. So, try and break it down, get it into small categories, specific categories, because then you’re in a position to say, “I’m going over my paycheque every month. What do I need to change?” Well, you have the specifics. What are you willing to give up? And it often involves making some of those tough choices. You overspend in one area; it means you’re going to have to go without in another.

Tera:

My mom used to always say to me, “Pay yourself first, but write it down.” So, it was kind of like my savings. So, for me, having a budget helps me know how much I can pay myself, while still covering my bills. So, since we’re talking about a little bit, the lines, the details, Jasmin, take us through the steps of creating a budget, because a lot of people can think that it’s complicated. So how, how would you start?

First things first: How to get your budget started.

Jasmin Brown:

So, I always suggest that people gather their last few months of bank statements, credit card statements. Putting together the budget is going to be tougher for you if you have irregular income. So, if you’re paid seasonally or something like that, you’re going to have to do a little bit more work. But figure out, I mean, most budgets are typically done on a monthly basis. That doesn’t have to be the way that you budget, that’s just the usual. So, if you’re paid… Are you paid once a month, twice a month, biweekly? Figure it out. You can work on monthly averages, or you can use your lower month as sort of the base starting point, and that extra paycheque, if you’re paid biweekly is sort of a bonus.

So, start with what’s coming in. And do you have any other sources of income? Do you get a GST check? Do you get child tax? Do you have a rental property that gives you some passive income? So, figure out what all the sources of income are first. Then, like Ron mentioned, figure out what’s fixed, what’s variable. I always start with the fixed. What are the have-to-haves? The ones that typically don’t change much month-to-month, that you don’t have a ton of discretion over changing those amounts. They sort of are what they are.

So, I do those next, and then what’s left? What are your saving goals? Put aside some money for saving. If you put that aside, what do you have left for the variables: the food, the entertainment, the gas? And make those amounts work within what you have left.

What if you hit a budgeting roadblock?

Tera:

Now, Ron, what advice do you have for people who go through the process of creating a budget, and even after cutting expenses, they’re still living paycheque to paycheque, or their expenses exceed their income?

Ron Gagnon:

Well, I mean, I think you need help at that point. And you need professional help on counselling, on budgets and everything. You really need to figure out the problem, because as Jasmin was saying, you determine what’s left of your income once you’ve gotten rid of all of your fixed expenses and your variables. And like I like to say, is if you can automate a lot of those payments, especially the fixed ones, then the money’s gone, if you can time it with your paycheques and everything. So, you’re really not tempted to go in and again, take money out that’s not there obviously. And you’re only going to miss food once, right? So, you know that you have to make sure that there’s something left. So, I’d say get some help, take the time to go and have a nice budget done by a professional, and look at maybe if you’re overspending, and if there’s only so much you can do with that budget, then you have to revert to doing maybe a consumer proposal, or another method to get down that indebtedness.

3. A budget helps you get out from under debt.

Tera:

And Jasmin, how can a budget help someone who is actually going through a consumer proposal or bankruptcy process?

Jasmin Brown:

Well, in either of those processes, you do have payments that you have to make. And so, it helps you to figure out where your money is going, and make sure that you have the ability to make the required payment, so you can actually get out of the process, and get your fresh financial start. That was the idea in the first place. And so, going back to, what do you tell someone where they’ve sort of made all the cuts that they can, if debt repayment is part of that, it’s one of the expenses that you can’t trim anywhere else, you have to make these payments, it’s especially important to reach out for some professional help to look at debt repayment options.

And maybe it is a matter of tightening up your budget, but maybe it does mean going beyond that to get some true financial help, to get the light at the end of the tunnel, to get you out from under the burden of that debt. So, it does depend a little bit in terms of what’s happening in the budget that’s making it sort of impossible to ever catch up.

4. A budget helps you rebuild your credit.

Tera:

And what about somebody who’s trying to rebuild their credit after an insolvency? How important is a budget then, Jasmin?

Jasmin Brown:

Well, for me, I think a budget is important for everybody, every level of income, but certainly it does help in rebuilding your credit. You want to start making contributions to an RSP or a savings account, and start changing your financial picture, start creating a new credit history. It matters if you’re paying your cell phone bill on time. You want to get so that you’re meeting all of those deadlines, because all of that is creating your new financial picture. And the budget is the most powerful money management tool that will make it possible for you to actually do that.

5. A budget is key for building healthy spending habits.

Tera:

So, Ron, let’s talk about the impact of a person’s spending habits on their budget. What are some good versus bad spending habits, for example?

Ron Gagnon:

Oh, there are many good and bad spending habits. I’d say with the current situation, a lot of people are working from home, are in lockdown and everything, that the one thing you do want to avoid is you don’t want Amazon becoming your best friend. That is definitely a bad habit.

Tera:

I’m feeling personally attacked here, Ron. Okay.

Ron Gagnon:

So, yeah, you’re influenced by so many different situations in your spending, and you’ve really got to look at what’s healthy and unhealthy, and I’m not talking about necessarily smoking or not smoking. It’s a lot broader than that. So, it is very important to look at where the money is going, what type of habits you have, because if you’re going to run out of money, you want to make sure that you’re not cutting on food. You’re cutting on things that aren’t healthy spending, or that they come back because he can’t resist doing such and such a thing. Well, you have to resist. The budget will help you see that. It’s in your face. So that’s why, as Jasmin said, everyone should do it, except maybe Jeff Bezos, the Amazon guy.

Tera:

He’s fine. How do you think external influences impact our spending habits?

Ron Gagnon:

Oh, absolutely they do. I mean, whether it be… There’s the media, obviously, and social media is, they seem to know what you want, so they pop it at you all the time. So, you’ve got to be careful with that. You’ve got to resist that. And the FOMO kind of thing also, someone else has got it, so I want it, too. You’ve really got to look at all that. And be aware of your family and your surroundings, because not everyone has the same disposable income, so you can’t always look at the neighbor that seems great, but the situation is likely he’s been saving for years now, so he can spend more. So those are things that you have to be careful really off. So yes, it has a huge influence.

Tera:

My major influence, knowing that I need to budget, was sitting down. My mom was very open about what the family finances were. This is where my mom was the one who sat down with all the bills. And I remember, I have a vivid memory of my mom sitting at the kitchen table with all of the bills from the mail and writing in her little checkbook and writing checks. And I remember going to the post office with her and putting them in the mail. So that was always something that was in the back of my head. I think she still mails checks to this day. I mean, she’s in her sixties, so that’s probably why. But I guess parents have a huge influence on it. So, Jasmin, let’s talk about the impact that having a budget that tracks your spending and expenses can have on your ability to repay your debt.

Jasmin Brown:

It’s crucial, right? Because the tracking, you just know what’s there. And if you’re setting aside, if you know what those debt payments are, then you’re going to make the choice to make sure that you have that money available to the extent possible. So, it’s very important, because to me, I find that debt can be quite a slippery slope for people. If they’re into their credit card, and then it just becomes too tough, they’re maybe not paying attention, it’s easy for that to snowball and for the debt amount, it’s like your threshold for what you’ll allow yourself to get up to just keeps getting higher and higher. So, if you don’t pay attention, if you don’t track, it really does have a tendency to get out of control. And then that just, your options, in terms of what you can do to manage it, and to get things back on track, get a little bit smaller.

6. A budget requires couples to talk about money. 

Tera:

In a recent podcast, Ron, we had a great conversation about relationships and money with Michael Comrie and Jennifer McCracken. And one topic we touched on, was how couples can communicate better about managing their money and dealing with financial challenges. So, budgeting as a couple can be difficult, we know, because sometimes our ideas of what we need or want don’t align, mostly because it also involves talking about money and making compromises, right? So, what processes should a couple go through when they want to create a budget together?

Make sure your budget works for both of you.

Ron Gagnon:

It starts with a conversation, so that’s the first part. So if you’re not communicating on other subjects, it’s not going to be simple to do it on a budget, but you absolutely have to, and fix common goals also, to know what’s the situation, because sometimes you’re going to learn things about your spouse that you didn’t know that they were spending, or expenses that they were incurring. So that should be laid out on the table, unless you would take a totally, “Let’s separate our budgets. And let’s only contribute to the common expenses.” But yes, you have to have a chat, definitely.

And then look at what the common expenses are, whether it be the rent or the mortgage, or the utilities, everything that’s common. Then you have to look at that, because that’s not something that should be different from one person to another. You have that in common in your family. Then there are the other expenses that are a little more, I’d say different. So, if you choose to combine your budget, that’s okay, you can do it that way. If you could totally combine it, you could separate everything. And you can have a hybrid method, where common expenses are put together, and where the rest is separate, because your income can also vary from one person in the family to another, and that might influence where your spending goes.

Tera:

Mm-hmm. And Jasmin, how do you suggest people choose to manage their money? Like how would you suggest they do that? Is it about comfortability? What do you think?

Jasmin Brown:

So, this is where it goes back to, like Ron says, having those conversations, and even Tera, what you said about your mom sat you down and talked to you about these things. That’s not all that common. So, a lot of people that I meet with will say, “I just wish somebody would have told me about these things when I was younger. I just never learned this. They didn’t teach it in school.”

So, it can become a little bit difficult in a couple situation, where one person was raised with the mom that focused and sat down and showed them the bills and prioritize your spending. And my mom told me, “You never put a vacation on a credit card. You save for those things.” And the other person in the couple maybe did not have even close to that same kind of experience with money, didn’t have those lessons. So, it becomes so important to have those conversations and find out, “Okay, what are we both willing to live with here?”

And also, to discuss the common goals, or the goals in general, and find places of overlap. Where are we the same? And then you can sort of build from there. So, in terms of the budget, I think that all comes to a conversation, too. Are we both willing to put each paycheque into the pot, no matter if somebody earns more or less than the other, we put it all in, our bills get paid, and we each get this amount of money for our personal spending, or the way that we want to use it.

A budget should not be made in such a way that it’s just no fun for anybody. That’s not healthy either. But I think some couples will decide to keep everything separate. I’m not a huge fan, because that’s when you get that lack of transparency about somebody’s spending habits, and “Surprise, I have a bunch of debt or other things that I haven’t told you about.” So, I favor a more transparent situation, where you actually talk about it. But how it looks, whether it’s joint or if it’s joint just for the household bills, and then the rest is separate, and all of that just has to come from a conversation, and hopefully each person can be satisfied with the decision that is made. But the most important thing, do not avoid it. Don’t just, “It’s too hard to talk about this. I don’t want to share how I actually spend my money.” Talk about it, figure out the plan, because it’s not going to get any better, just avoiding it and leaving it without discussion or addressing it.

Tera:

And yes, Ron, sorry, you just want to add.

Ron Gagnon:

I just wanted to add something to what Jasmin was saying. Different ways of being brought up will give you more or less, a little bit of financial expertise. So, I think it’s good to also bring the family into the mix. So, it’s a couple of discussions, but then I think you should bring it down to your kids, so they will learn from that, and they’ll be better than you are likely, when the time comes around to being adults.

Tera:

I want to just, sorry, something came up, and I just wanted to see if either of you had any feedback on this, because I know we hear this notion in couples that it’s a 50/50 partnership. But Jasmin, you’ve brought up, like in a lot of cases, one person in the relationship makes more money than the other person in the relationship. So, 50/50 is not really going to work, because the person who is making less money will be putting in actually a bigger percentage than the person who’s making more money. So how do you have that conversation, because that could also be a little bit difficult too?

Jasmin Brown:

Mm-hmm. And that would be… I mean, I guess it depends who your partner is, in terms of how tough that conversation is. But I would say the percentage of relationships where it’s 50/50, or very close to, would be fairly minimal. Generally speaking, someone is going to make more or less than the other. And I mean, you’ve got to decide as a couple, if the household spending is going to reflect that, or are we a team, and we’re both contributing what we are. We’re both working hard in our own way, and building this life together, and so we’re going to do this jointly, and each having the same. I don’t know. It’s a tough conversation. That’s the way I think it should be. But that’s my personal preference. I think the important thing is that both people agree to whatever the plan is.

Tera: Yes, Ron?

Ron Gagnon:

I just love the fairy tale approach that Jasmin is continuing. It may be a cultural exception, I guess, but some people might see it otherwise. I think it’s important again, back to the conversation, to the discussion, and set the goals. But obviously, if there’s a great discrepancy between incomes in the household unit, I mean, obviously if you want to have fun of it, the one with the more money is going to have to spend more. So, so I think that’s going to be an obvious thing. But I’m sort of on the other end of the spectrum of Jasmin. I say, “Keep everything separate, and just put in common what you absolutely have to.” So whatever works, right?

Jasmin Brown:

I’m a small-town farm girl. I can share.

Be honest with each other about your spending habits.

Tera:

I’m sorry. What are some strategies couples can use to overcome drastically different spending habits and credit behaviors? I’m going to go with you, Ron, because I’d love to get your take on this.

Ron Gagnon:

What are the strategies? I mean, first of all, well, you look at the budget, and then you discover what they are. This is where it can get kind of touchy in the discussion, because who are you to say, what’s a non-expense or a non-interesting expense, or what’s irrelevant. And that can be a pretty stressful situation, and I would try to be careful in that approach. So I think it’s a question of depending, if you do put the whole budget in common as done in the prairies, I’d say, you should, at that point, really say, “Okay, who has the… Where’s that money going?” Or, “We can’t afford it.” Obviously, if you have a lot of debt, you’re going to make sure that you’re careful where the money’s being spent, because you want to bring down that debt. So that would be really for me the base things. So, some people are spenders, some people are savers, you have to have that discussion. I see no way out of it. That one, whether you’re putting your money in common or not, you still have to have that discussion.

Tera:

In our house, my husband is the saver, and I’m the spender. And we’re very aware of who we are as people. And I also wanted to add that if you take it too seriously, when I say take it too seriously, like know who you are, and don’t make it a point of contention. My husband is constantly joking. Whenever he sees an Amazon package, he’s like, “Oh, that’s my wife’s, she’s rich.” Like he jokes. And I’m very nowhere near rich, but we make light of it, so it doesn’t become a heavy conversation. It’s just kind of just part of our everyday life. He knows that I like to treat myself sometimes, but he also trusts, because we have that conversation, that I am not going to spend us to lose the house. So, I think if people take it too seriously, and not have a little fun with it, as you said, Jasmin, it can become more contentious and more difficult than it actually needs to be. Do you have anything to add to that, Jasmin?

Jasmin Brown:

Yeah, the relationship is important, and both people need to see it as important, and think about the way that they treat it. So, for me, even if it’s tough, I feel like you should be honest about how you spend your money, what your spending habits are. Now, you’ve got to have some give too, right? Not everybody thinks like you, not everybody is you, which is a good thing, too. But you know, being honest, being transparent, and then deciding together, what are our ground rules going to be? Do we have a threshold? If you’re going to spend over X amount of money, I need to know about it, and I need to give my stamp of approval. Whatever works for the couple.

But if you’re both involved in deciding what the ground rules will be, you both agree on them, you can both be held accountable to them, discuss your goals, figure out, like I said, what are the things you have in common, because there’s got to be some common ground. Prioritize those things, but be open about it, talk about it and figure out what’s going to work for both. And don’t be too, I don’t want to say tight, but don’t be too strict on it. Remember that there should be some fun, there should be some pleasure in the budgeting.

Tera:

Yes. Right.

Ron Gagnon:

And part of that pleasure can be that there could be a certain amount monthly that goes towards the category, “do whatever you want” with that amount. And that will take a little bit of stress, and still allow everyone’s individuality among a common goal. And one thing I would add also is, don’t hesitate to go back and revisit that budget. Don’t have it being too rigid. Things change. And another thing, and it’s a little off topic, but don’t forget those expenses that come in once a year and then you go, “Oh, I forgot about that one.”

Jasmin Brown:

Oh, yes.

Ron Gagnon:

Those are very important to be part of the budget, so the budget is work.

Jasmin Brown:

Christmas.

Ron Gagnon:

I mean, Christmas, or your driver’s license. Things like that. You don’t see them, but then all of a sudden, boom, they’re there. So, you need to take that into account also.

Jasmin Brown:

Yep.

Make a date to review your budget together.

Tera:

And in closing, my last question or advice-seeking from you both, because I said at the top, it’s a living document. It is a living thing, the budget. So, can you give any suggestions, Jasmin, on how people can track their spending, and sit down and talk often?

Jasmin Brown:

So, you can set a date where this is the date of the month or the once or twice a month that we’re going to sit down and talk about this. Track as you go. Even if it’s a monthly budget, if you look, “Okay, where am I at week one, week two…” you’re more likely to stay on track. So, the more you revisit it, the more you are likely to stick to it. Account for those things, like Ron said, that come in once a year, plan ahead for everything, try and build those things into your budget, and make it work for you that way. Track as you go and revisit it.

Life changes, jobs change, things happen. So, you’ve got to go back and readjust to meet your new circumstances when that happens. And aim for progress, not perfection.

Tera:

That’s great.

Jasmin Brown:

You don’t become a master budgeter right after the first month. Chances are the first month doesn’t really pan out that well, but don’t toss it. Figure out what went wrong and do it a little bit better next month. And then, get some momentum going. And eventually the budgeting process will get easier if you just stick with it.

Tera:

And Ron, what about warning signs? So, you’ve done everything Jasmin said, and now you’re still having troubles. What are the warning signs for that? Can you go over that for me?

Ron Gagnon:

One of the warning signs is if you have an unexpected expense that pops up, and you have no other way than using credit to pay for it, that’s one of the warning signs. That means your budget is either not followed, it could be insufficient, like for an emergency fund or stuff like that. I always like to say, “The refrigerator can break down,” and if it does, you can’t go without it. So, those are the types of things that you really have to be careful about. So, it’s a serious exercise. Like you said before, you’ve got to have fun with it too, Tera, but you have to be able to plan ahead, and make sure that this is something that you’re going to be able to stick to, because it can only have advantages in the end.

Tera:

Thank you both for sitting down with me. This was a lot of fun. Talking about budgeting, and we made it fun. Thank you so much. Have a great day.

Jasmin Brown:

Thank you.

Ron Gagnon:

Thank you.

Tera:

Once again, I want to thank my guests on this budgeting episode, BDO Licensed Insolvency Trustees, Jasmin Brown, and Ron Gagnon. That was a great discussion, and I can’t wait to pair up with you guys again. If you are looking for more financial wellness podcasts, videos, debt management resources, and tools, please visit our website: debtsolutions.bdo.ca. And remember, we are here to help you turn the page on debt. Your next chapter is waiting.

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Date

December 8, 2021

6 reasons why budgeting is important

Budgeting is a balancing act. It’s a plan you create to make the most of your income. A budget can help you live within your means, balance needs and wants, and warn you when your debt load is hindering your goals.

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