Do your spending habits follow a certain pattern?
One of the most important steps towards financial wellness is to gain a deeper understanding of your financial habits so you can manage spending and maximize saving.
Budgeting is harder than it looks: it’s about a lot more than creating spending buckets in an app or on an Excel spreadsheet! Budgeting means being able to control your spending habits and impulses on a psychological and emotional level. It requires a great deal of mindfulness.
Take our Budget Persona Quiz to gain more self-awareness of your spending habits. Identifying your “budget persona” to the pattern of your financial habits will help you take a step back and think about how your financial behaviours are helping you achieve your goals.
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The architect budgeter who lives within a sound financial lifestyle that fosters healthy spending habits and avoids overspending is a goal everyone can aspire to. But it can take some time to get there. And there are times in life when you might need to micromanage your spending, and that is OK too. The key is self-awareness!
David Noronha, a BDO Licensed insolvency Trustee, says that people are often a mix of budget personas. You might be a stickler when it comes to grocery shopping but more of an idealist when buying a couch. But there’s one personality you for sure want to avoid, according to David.
“If you’re the procrastinator, it means you aren’t tracking your money and that’s a problem. It’s a problem you can fix though. The key is to start, having even the simplest budget is better than nothing.”
It’s easy to see why people can fall into the procrastinator category. Money and personal finance are intimidating.
“Putting off starting a budget just kicks the can down the road. Ignoring your money problems won’t make them go away,” says David.
It’s OK to feel overwhelmed and unsure of where to start. BDO’s budget planner can help you start to put together a budget on your own. There’s also a variety of different strategies and methods, such as using budget apps, to help you track you spending.
“There’s no one size fits all budget strategy,” adds David. “So don’t be afraid to take elements of different budgeting strategies to make it personalized to work for you and your situation. Once you get into the habit of sticking to a budget it should become a lifelong skill,” says David.
Doing a budget right now doesn’t mean you never have to do it again. Circumstances change and as a result so do the needs of people’s budgets, David explains.
“I’ve been doing a budget for myself for over 30 years, and I’ve made all sorts of mistakes because I can’t predict the future. Your budget is always evolving. It’s a living thing.”
If there are months where you know you’re going to spend more, on birthdays or the holiday season, for instance, you should be looking for other months where you spend less to boost your savings.
Maybe you see that June is a month where you’re likely to spend less and so you put more away into your savings during that month. “What works for one month probably doesn’t work for all 12 of them so you need to constantly adapt your budget,” David said.
There’s a misconception that budgets are about telling you what you can’t do. Many people see budgeting as a sort of a punishment and take a glass-half-empty view of them.
We should try turning that thinking around and seeing budgets as an opportunity, David says.
“I try to tell people that budgeting is about planning. It’s about figuring out what you can do with your available resources.”
“It’s not a punishment. It’s a way to free yourself from the fear of overspending without meaning to,” he adds.
People don’t like to budget because confronting your financial reality can be scary. But it’s always better to know if your spending is outpacing your means. Knowledge is power. If you do see you’re spending beyond what you can afford it may mean making serious lifestyle changes. It’s better to know sooner rather than wait until it’s too late.
If you have a partner or kids, creating a budget is even more important, David noted, because you’re not just providing for just yourself.
“It’s really empowering once you know how to do it and it will serve you for the rest of your life.”
If you’re new to creating a budget, David has some tips for getting your mind into the right place.
“Do it at a time of day when you’re not tired, frustrated, feeling down or anything like that. You need the right attitude. You need a positive frame of mind.”
Think about your daily spending habits and what sorts of things motivate you to spend as well. You want to make as complete a budget as you can.
Once you’ve created one it can be a good idea to reassess it at the end of the first week to see if you got things right.
“You have to pay attention to what you’re spending and compare that to what you thought would happen,” David explained. If things are on track, you’ll know you’ve created a solid budget. If not, then you’ll quickly be able to see where what you thought would happen clashed with reality.
“It’s like public speaking, you don’t know if you’re good at it until you do it,” David says.
If your income doesn’t cover your expenses and you feel like you’re losing control of money and your life, we can help. One of BDO’s Licensed Insolvency Trustees can assess your financial situation and find a path for you that’s personalized and tailored to your situation. If you’re ready to take control of your finances, book a free consultation today.