Budgeting for People Who Hate Budgets
Part 2: Financial Planning foundation series
Let’s be honest—budgeting doesn’t exactly scream "fun." For many Canadians, it feels like dieting: restrictive, complicated, and guaranteed to ruin your day. But here's the good news—budgeting doesn't need to be tedious or complicated. It can actually be simple, straightforward, and overall, a stress-reducing exercise.
Why Bother Budgeting?
Budgeting isn’t about punishing yourself for enjoying your morning coffee or splurging on a good dinner. It's about awareness and freedom. Knowing where your money goes allows you to align spending with your goals, whether that's retiring on time, a vacation, reducing debt, or just eliminating financial stress.
A budget is the core of your financial plan. It's the fuel that powers your plan's growth and will ensure your plan's resilience and success in retirement. After all, we need to know how much you plan on spending in retirement (on a monthly basis), in order to determine the appropriate savings level with confidence.
For those who have a bit of an allergic reaction when it comes to budgeting, it can be made very simple, requiring minimal time and effort. We’ll review the simple approach to budgeting before reviewing a more in-depth approach.
The Simple Budget
If spreadsheets make your head spin, here is a pain free approach to budgeting.
Automate your spending in the following order:
Pay bills on pay day.
Contribute to your investment (or mortgage freedom sooner plan) on payday (typically 5% - 20% of income, depending on where youre at).
Spend the rest.
Dont go into any debt on regular spending, you can’t pay off by the next pay day.
Having an effective budget that serves as a foundation for a financial plan is that easy.
By sticking to these 4 simple rules, a stress free financial life and financial freedom await.
As you start to see the benefits of budgeting, it can become enjoyable. The next level of budgeting involves digging into your expenses to see where you might cut some costs that aren’t really adding to your overall happiness, to reallocate that income elsewhere:
Whether it’s saving for a vacation or other major purchase, or paying off debt faster. A deeper dive into budgeting can give you the awareness to put your hard earned money to work in the best possible ways and is the foundation of a good financial plan.
Traditional Budgeting: For Those Who Want a Deeper Dive
When creating a comprehensive financial/retirement plan, a more detailed review of your spending and savings is one of the first steps.
Even if the budget is not adhered to perfectly, it’s helpful to have a snapshot of where your money is going. From here we can allocate resources within the financial plan efficiently, and project spending needs during retirement (often expenses are lower in retirement!).
If you're ready for something a bit more structured, consider these traditional budgeting methods:
A Notepad: Top financial planners encourage pen to paper. There’s something about writing down your budget that makes it more personal, and easier to take ownership over. Better yet, it can be done in just a few minutes. No need to set up any apps.
Excel: Many budget enthusiasts prefer a spreadsheet for their budget. This allows easy saving to your device and makes it easy to track month to month spending.
Budget Apps: Mint.ca or youneedabudget.com are the top budgeting apps. For those that commit to these apps, the results can be life changing. What the apps do is merge your targeted spending with actual spending, automatically pulled from your bank account. So you can see on a weekly or daily basis, if youre on track.
Recommended Approach: Start Detailed, Then Simplify
Even if you're not a budget enthusiast, try tracking your expenses in detail for one month—just once! This helps you understand exactly where your money's going. Once you’ve got clarity, you can shift back to a simpler, more relaxed budgeting style, knowing exactly which spending areas need attention.
This quick exercise can reveal surprises.
How does budgeting tie into other areas of financial planning?
Debt and Mortgage Management: Budgeting helps prioritize debt repayment, reducing costly interest and allowing quicker mortgage paydown. It ensures you balance daily spending while effectively reducing long-term debt.
Retirement Planning: When planning for retirement, budgeting suddenly becomes a game-changer. Your expenses in retirement likely won’t mirror your current spending. By budgeting now, you’ll understand:
Which expenses disappear
Which new expenses appear
Understanding these changes helps you accurately plan how much you'll truly need in retirement.
Investing: Effective budgeting frees up cash flow for consistent investing, crucial for long-term wealth accumulation. Understanding your spending helps maximize investment contributions without sacrificing lifestyle.
Income Tax Planning: Effective budgeting allows you to take full advantage of income tax reduction strategies including, but not limited to RRSPs, TFSAs and the Smith Maneuver.
Estate Planning: Clear budgeting provides a comprehensive view of your finances, making estate planning decisions straightforward. It helps ensure assets align with your intended legacy and minimizes future financial stress for your heirs.
We’ll review these other areas of financial planning in depth.
Simple 5-step action plan
Choose a Method: Pick something easy and stick to it.
Track for One Month: Get a clear picture of your actual spending habits.
Set Up Automated Savings: Automatically put aside money each payday.
Adjust as Needed: Tweak your categories based on actual habits and goals.
Review Quarterly: Check-in every three months to stay on track without stress and evolve your budget approach as necessary.