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A Beginner’s Guide to Budgeting

Whether you’re a U0 or a U3 (or above) here at McGill, chances are you don’t live at home and your parents no longer pay all of your bills. If you are a lucky lady who has someone paying all of your bills, go away. If not, read on!
Everybody who has bills and an income must absolutely, 100% have a budget to ensure proper money management. Believe it or not, one of the key indicators of wealth is not power, status, or income, but rather money management. Basically, how do you decide what to spend your money on?

A helpful adage

  • Poor people use their money to live
  • Middle-class people use their money to pay debt
  • Wealthy people use their money to invest

There is ALWAYS a need to have a budget. Even if you are only graduating in four years and are sure that you will have a high-paying job, you still need a budget. No excuses.
The first step in creating a budget
Quick, how much did you spend last month? Don’t know? Lack of knowledge is the main reason that budgets fail. Sure, you can pull a number out of the air and allocate say, 100$ for monthly groceries. But if you’re routinely spending 200$ per month on groceries, you will quickly blow your budget and get frustrated with the whole process.
Track your spending
Keeping an account of how much you’ve spent for a month is oftentimes tedious. There are many ways that you can keep track—pen and paper, excel spreadsheet, various apps (I personally love the Piggie App for iPhone). This first step is not easy but it is the only way that you will be able to have an accurate estimate of how much money is flowing from your bank account each month.
The second step
Once you’ve collected all of your spending data, start writing! You can categorize your expenses however you wish, but here are a few to help you along: rent, utilities, cell phone, bus pass, groceries, eating out, entertainment, car expenses, insurance, gym membership, savings, spending money, and debt repayment.
Here comes the scary part
Once you’ve listed out all of your monthly expenses, add up the number. That’s the amount of money that you need, each month, to make sure that you aren’t going into debt. If that number is higher than the amount of money that you bring in, you have two choices: make more money or cut back.
Making more money: You can make more money by getting a part time job, tutoring, babysitting etc.
Cutting back: You can cut back by cancelling cable or you gym membership. You can look into getting a cheaper apartment or cut back on your cell phone use.
How to budget for non-regular expenses
If you own a car, you know that once a year, the government comes calling and demands a few hundred dollars to renew your registration. So how do you budget for yearly expenses such as these? There are two popular ways—the one you choose will depend on your level of self-discipline.
The first way is to calculate the yearly amount that you will need and divide it by 12. That smaller number will go onto your monthly budget and you will need to adjust your income/expenses accordingly. Each month, 1/12 of your yearly expense should be transferred into a separate bank account. You should not touch this money. When the time comes to pay your yearly expense, the exact amount will be in your dedicated account.
The second way is to have different budgets each month and try to make them balance. I find this second way more difficult as my income is often not steady month to month—how would I know if I will have an extra $300 in November for my car registration?
Budgeting for unexpected expenses
Say you find out that your best friend is eloping and you need to fly to her destination wedding—that’s what credit cards are for, right? Wrong. Credit cards should not be used if you do not have the cash to pay them off. Basically, you need to start budgeting for unexpected expenses.
Fortunately, this step is easy: simply open a separate bank account and save some money in it. This money will be labelled your emergency fund and again, you should not touch it. If you are disciplined enough, the money will sit there and wait for your unexpected expense. Experts recommend putting 3-6 months’ of expenses in an emergency fund but come on, we’re students—who has that much money sitting around?
I will be posting once every three weeks here on the Her Campus McGill blog—I hope that by my next article you will have all made (at the very least) an attempt to set up a budget!

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