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 for everyone and there have been privileges in life that have also contributed to my financial experiences. This purpose of this post is to demonstrate how using a budget has positively impacted my life, and hopefully to provide ideas for how it could serve you on your path as well. It is by no means a guide or blanket statement for everyone’s 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 comes from sacrifice
First, it wasn’t without a lot of 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 and life’s 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 successes weren’t without the help of others. When I was 14-years old, my father handed me “The Wealthy Barber” to read. I can’t say that it was the most riveting read for a teenager, however I learned 2 massively influential pieces of information: compounding interest is your best friend, and always pay yourself first. Then, during undergrad and my post-graduate diploma I lived at home. My parents were amazing in providing 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 fantastic college are close by.
If I’m honest, oftentimes I wish I had debt if it meant having the shared university experience of my peers. So 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 be over. School quickly became a task to race 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.
Surprise tuition and saying goodbye to debt
Third, in 2013 Ontario universities announced that teachers college was expanding to a 2-year model. Teaching had always been in the back of my mind. 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 two more years in university, especially 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 another country 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, and worked my buns off again while in school. It was another slog of a year. I paid off that credit line one year after graduation and was officially free from debt. I may or may not have done a happy dance.
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 previously made, the smart financial habits I’d developed, and my desire to explore came together 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 had a ton of fun. 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. Heck no to that! While that of course meant having to sometimes say “no” to another round at the pub, shopping, or frivolous purchases whenever I wanted, I still experienced most everything I wanted to that year. I learned that my priorities in life were having experiences like concerts and travel, versus the cutest new dress. (PS I love nice clothes, but I love travelling and live music more.) I also learned that it was really gratifying to save up for something, watching the numbers rise, and then pay for it when I could afford it. Instant gratification’s got nothing on that feeling – because it lasts, has value, and 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 I found it hard to follow as a teen. 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 focus is on having something reliable, well-made, and with parts that are easy and affordable to source. Hondas and Toyotas win big in each of those categories. I’ve always bought my cars secondhand 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. 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 afford it with the money in my pocket. It’s a great rule of thumb and one that should be included in our education system (that’s for another post). After working so hard to be debt free, I have zero desire to owe anyone.
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. It’s the little things, ya know?
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 quickly 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 get 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 as my normal. Sure, I could have experienced some of those things to some extent at home, but I knew I wouldn’t be happy doing what everyone else was simply because “that’s what you do”. 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.