Many Canadians struggle with establishing healthy spending and saving habits. Often, the challenges are derived from a lack of financial education. In today’s consumer market, overspending and living beyond our means are trends that haven’t helped the equation. Canadians looking to strengthen their savings and build healthier budgets must first understand where they’re making avoidable mistakes in order to make better decisions moving forward.
Not Establishing a Budget
Spending without any type of budget in place is a recipe for disaster. If you don’t establish any parameters around your spending, you’re inviting unhealthy spending habits and likely setting yourself up for debt. A budget is put in place to help you outline your current income, expenses, and any savings or investment goals for the future.
Canadians looking to find solid financial footing should look for a budget tool that reflects their needs — to at the very least build an outline for their spending habits moving forward.
Leaving Out Expenses
When it comes to establishing a budget, full transparency is essential. Otherwise, you risk miscalculating your expenses, overspending and looking to borrow money online in Canada as a way to consolidate procured debt. This can happen due to innocent accounting errors or by making a conscious decision to leave out certain aspects of your finances.
To avoid this, it’s imperative that as you create a budget each month, every expense is accounted for. This will help you create a clear picture of your spending habits and will allow you to adjust your budget as necessary. Many Canadians find it helpful to create a budget with multiple spending categories — this will enable them to allocate funds based on their necessities and prioritize non-essential expenses.
It’s common for budgeters to categorize entertainment expenses as essential, especially if they live in a metropolitan city with various social activities and events. It’s easy to justify spending, but it’s counterproductive if you’re looking to build a robust financial foundation. When you create a budget, transparency is key. Identifying your essentials — rent, mortgage, food, healthcare — gives you a template for how best to allocate the rest of your money.
Not Allowing Any Discretionary Spending
Keeping your budget too restricted is almost as harmful as its counterpart. A limited budget has the potential to persuade Canadians to spend large sums of money out of feelings of depravity. If you have the wiggle room, allow for entertainment spending within reason — the 50/30/20 rule is a standard tool utilized — and you’ll find you’re able to save more frequently.
Not Building an Emergency Fund
Many Canadians are quick to spend in the present moment without thinking about their future. That’s where an emergency fund becomes vital. Creating an emergency fund is an essential component of a budget and long-term financial planning. This type of fund ensures you have money in place should an unexpected expense arise — this could range from a medical scare to a pipe bursting in your home. Setting aside a set amount of money each month — as much as you can afford — is a step in the right direction. The goal is to borrow or use your credit card as little as possible when urgent expenses present themselves.