I love budgeting. Call me a nerd, but making, using, and accomplishing goals through the use of a budget makes me giddy with excitement. Maybe it’s because I love analyzing data, making lists, and crossing off goals. Or, maybe it’s because numbers are cut and dry, yet also provide a constant jigsaw puzzle to master. Most likely it’s because having a budget has improved my life in so many ways.
Author’s Note: I realize that my situation is not the same as everyone else’s. Along my financial journey I’ve been fortunate to experience various privileges. This purpose of this post is to demonstrate how using a budget has positively impacted my life, and hopefully to provide ideas for how a budget could also serve you on your path. It is by no means a blanket guide for others’ unique financial stories.
1) Debt-Free Life
I have $0 in school and credit card debt. No dreaded OSAP. Zero lines of credit. No interest payments. Nada. Zip. ZERO.
Not without its ups and downs, graduating debt free, in large part thanks to the use of a budget, has improved my life in so many ways. There are a few things to note here, so bear with me.
Success requires sacrifice
First, achieving debt-free status didn’t happen without a ton sacrifice and dedication. I worked my ass off through 7 years of university, with 2-4 jobs at a time (and a few grants and scholarships mixed in) to pay for school, a car, and living necessities, minus (for the most part) rent and food. Safe to say, I appreciate the value of every dollar made and spent.
Life happens when we work together
Second, while it was necessary to take responsibility for my finances, my success didn’t happen in isolation. When I was 14-years old, my father handed me “The Wealthy Barber“. For a teenager it wasn’t the most riveting read, however I learned 2 massively influential pieces of information. First, compounding interest is your best friend. Second, always pay yourself first.
During undergrad and my post-graduate diploma I lived at home. My parents provided information and support so that my siblings and I could begin our adult lives debt free. For 6 of the 7 years, I didn’t have to pay for rent, utilities, or food. I was extremely fortunate that this was possible thanks to the generosity of my parents and the fact that 2 top-rated universities and a reputable college are close by.
If I’m honest, had you asked me if I’d prefer graduating debt-free or leaving school with a loan to repay and a carefree undergrad to look back on, I would take the latter every time. Missing out on the shared university experiences of my peers was a sore spot for a very long time. Many people speak fondly of those years. Most of my memories from university are of working like crazy and wishing school would hurry up and finish. University quickly became a task to rush through, which led my grades to suffer and my love of learning to evaporate. I constantly stressed about money and was often bitter that I wasn’t living with friends. However, in the long run everything works out. Those sacrifices led to future opportunities that might not have otherwise been possible. After 6 years and 2 university programs, I walked away degrees in hand and with a bank balance I could build.
Surprise tuition and saying goodbye to debt
Third, in 2013 Ontario teachers colleges announced expanding to a 2-year model. Teaching had always been in the back of my mind as a career. With that being said, I had always envisioned living abroad for at least a decade before slowing down to teach in Ontario. If I became a teacher, it would be when I was ready to “settle down”. Since there was no way I was going to spend another two years in university, least of all at teachers college, I made a last minute decision to apply to the final 1-year program. If I got in, I’d go. If I didn’t, I’d move to abroad as originally planned.
Long story short, I got in. Unfortunately, I didn’t have savings set aside. I was living in Toronto at the time and rent gobbled up half of my paltry entry-level salary. I was approved for a student line of credit, which barely covered tuition. I put my head down and worked my buns off again while in school. It was another slog of a year without much of a social life or fun to reminisce about in hindsight. One year after graduation I paid off the credit line and was officially debt-free.
2) Know Your Priorities
Having a budget helped set my priorities with how I spend my time, energy, and money.
This is when life started to become fun. The sacrifices I’d made, the smart financial habits I’d developed, and my desire to explore synchronised perfectly. I moved to Ireland in my 20s, pretty much a whim, with no more than a plane ticket and 2 nights booked in a hostel. Once there I found a job and apartment, travelled, and enjoyed life. The best part? I came home with money in my pocket (Euros to boot!). While most people return home from a year abroad with memories and are saddled with debt, I was setting myself up for the future while soaking up the present.
I couldn’t have done this without paying attention to my income and expenses with the use of a budget. I knew that if I wasn’t aware of these details I would have been paying off countless nights at the pub, attending gigs, and European travels PLUS interest long after returning to Canada. Hell no to that! This, of course, meant sometimes saying “no” to another round at the pub, shopping, or frivolous purchases. However, I still experienced much of what I’d hoped to that year.
One of the best takeaways from that year was realizing where my priorities and values lay. Experiencing live music, travel, and tasty food bolted to the top of the list. I also learned that it was really gratifying to save up for something and purchase it when I could afford it. The satisfaction of owning something lasts much longer when there are no strings (re: payments, interest) attached.
3) Purchase to Own not to Owe
I have never had a car payment – ever.
Purchasing to own and not to owe is another lesson I’m glad I learned when I was young, though I must say it’s hard to do! In today’s society, popular marketing trends shout the opposite messages at us: “You need this NOW!”, “Forget FOMO, Fill Your Life with Things You Can’t Afford!”, “Buy Now, Pay Later”. I still can’t figure out how the last one makes sense…Spoiler: it doesn’t.
Purchasing to own has come in handy more times than I can count, but in particular with purchasing vehicles. I have no interest whatsoever in driving a new car, unless it is a Tesla because eco-friendly transportation is badass. When it comes to transportation, my needs are how reliable, well-made, and affordable parts are to source. Hondas and Toyotas win big in all of those categories. All of the cars I’ve purchased have been used and paid in full with cash, which is why I’ve never had a car payment. I research what’s available and compare with how it aligns with my needs. I’ve learned how to negotiate and I trust my mechanic. Needless to say, the tens of thousands of dollars I’ve saved in car and interest payments has paid for itself time and again.
This idea of purchasing to own doesn’t just apply to cars. I rarely, if ever, purchase something if I can’t the money isn’t in my pocket. It’s a terrific rule of thumb. I especially detest paying interest and take great pleasure in the fact that I’ve never paid interest on a credit card. Why on earth would I pay someone even more for something I’ve purchased? It certainly doesn’t hurt that using a credit card properly by paying it off in full on time, works wonders for your credit score as well. After working so hard to be debt-free, I have zero desire to owe anyone ever again.
4) Create Your Own Life Path
Build your own path in life. It’s the most rewarding to walk.
After Ireland and a disastrous living situation on a Korean island, my partner and I left full-time jobs in 2017 to go on a 12-month odyssey. We chased summer for 4 months across 4 continents and then lived in New Zealand for another 8 months. I worked remotely part-time during those 12 months. I quickly realized I love the flexibility of remote work. My office became anywhere with a flat surface and decent wifi signal, including the dashboard of our Yaris as we car camped around Iceland.
Back home a lot of people I grew up with were getting engaged, starting to have babies, purchase homes, and getting married. I was thrilled for them, but didn’t share their ideas for how I saw my life unfolding. I craved movement – globally – and uncertainty and discovery and the unfamiliar for my normal. Sure, I could have experienced these things to some extent at home, but I knew I wouldn’t be happy doing what everyone else was. You’ve got to build your own path, even when people don’t understand you or why you do what you do.
5) Experience Life without Cringing at Credit Card Bills
I refuse to pay credit card interest. Always pay your cards in full, on time.
I can’t stress enough how important it is to always always ALWAYS pay your credit cards in full, on time. This should be everybody’s baseline for using this financial tool. Too many people see credit cards as “free” cash and then rack up thousands of dollars in credit card debt. Life is expensive enough as it is. You work hard for your money and limited time off (North America, I’m looking at you). Why would you ever wish to pay even more for it?
The way I’ve looked at it is, my time is already “worth” something based on the hours I work and the amount I’m paid. Do I like working more hours for the same amount of money? Nope. Do I want to earn less money for the hours I already work? Definitely not. Am I willing to pay double, triple, quadruple for that new (insert item here) or trip to (insert place here)? I think you know the answer.
The moral of the story is, you don’t give someone a blowtorch if they don’t know how to use it properly. Treat a credit card like a blow torch – if you’re not ready to use it responsibly, drop it like a hot potato. On the other hand, if you’ve got the discipline and systems in place to use your credit card properly, I promise you’ll “save” yourself a LOT of money and time. And did I mention this is the perfect stepping stone to pay yourself to travel?
6) Give Yourself Flexibility
Awareness is the first step to conquering your financial life. Planning paves the way for spontaneity.
Since I know what I’m working with in terms of cash in and cash out, I can pivot on a dime when plans change. Knowing my fixed and variable expenses gives me the piece of mind to live in the present and plan for the future. It also gives me a lot of flexibility and room for spontaneity. Many people associate budgets with rigidity, chains, and restrictions. However, perspective is everything. I view budgets as tools to achieve my goals and be as planned or spontaneous as I want. Last, when adjusting your budget you always have two choices – make more money or reduce your spending. More often than not, reducing your spending is the easier option.
7) Establish Peace of Mind (especially in a COVID Crisis)
When COVID-19 shut down all sense of normalcy, I adjusted my budget as necessary, including through periods of unemployment.
Prior to COVID I had a good handle on my finances. I knew what was coming in and what the average expenses were going out. In a lot of ways, for me, COVID increased the amount of money I could set aside in the “oh sh*t” fund and in savings. This was especially helpful when I wasn’t working because of the pandemic. How is it possible that I was saving more money when the pandemic began? Since cafes, restaurants, and outside entertainment were off-limits, all of those spending categories immediately shrunk to $0. The grocery category increased for a month or two, however that evened out by the other categories’ under-spending. Any money not being spent as usual transferred into savings.
In addition, I shifted my go-to activities. Instead of meeting friends for a drink, going to the movies, or working at a cafe (all activities that cost money), I exercised with free YouTube classes. I also caught up on reading books that were already on my shelf. The extra time I gained from not driving to and from work, socializing, and travelling transitioned into time for other activites, all of which cost nothing. What many people don’t realize is that these free activities – being in nature, learning, slowing down in some way – have always been available as inexpensive and enjoyable past-times. In this respect, COVID has positively effected a lot of lives as they slowed down.
8) Start Your Future Now
The number one rule of budgeting is to pay yourself first.
YOU are a fixed expense, in the same way that your house, insurance, and phone bill are. This is another massively important tip I’m extremely grateful to have learned early on. Each month I set aside money for the “oh sh*t” life detours, retirement, and for other shorter term goals. Much like with our physical, emotional, and brain health, our financial health should not be yesterday’s leftovers.
If you haven’t heard of compounding interest before, go buy “The Wealthy Barber” or borrow it from the library. David Chilton, a fellow Waterloo Region resident, describes in laymen’s terms the concepts of paying yourself first and compounding interest. The important thing to remember is not so much the quantity you invest, but that you establish the habit of paying yourself first on a regulary basis. The younger you start, the better, but it’s never too late to begin. This one’s important, folks!
How Will a Budget Improve Your Life?
What do you want to accomplish in life? Is there a trip you want to take, a home you want to buy, a gift you want to give, an item you’ve been dying to own, or security you want to ensure for your future? It doesn’t matter what your goals are. They don’t need to be the same as anyone else’s and you don’t need anyone else to approve of them. What you do have to do, regardless of the goal, is to plan for it. S.M.A.R.T.E.R goals are an excellent guide for making sure you are successful.
I’d love to hear your experiences with budgets in the comments below or by sending me an email.