Organizing your finances can seem daunting during the best of times, and things feel particularly precarious these days. No one knows how long social distancing will last or what kind of shape the economy will be in after it’s over. All that uncertainty can make even small tasks feel overwhelming, but the unknown is often more stressful than the facts.
Although it might be the last thing you want to do right now, making a budget will give you a clearer picture of your finances and what you can afford in the coming months. As a renter, paying your landlord is likely your biggest expense. Figuring out how you’re spending the rest of your money will not only help you pay your rent, it will also help you assess if you’re comfortable with your purchases and if you have room to save.
First, take a deep breath. It’s time to take an honest look at your finances, and it doesn’t need to be as tedious as you might think. There are easy budgeting tools that can help you calculate your expenses that don’t involve excel spreadsheets or formulas. Choose whatever method works best for you and follow the steps below.
Step one: List your monthly income (which, understandably, may be challenging right now). If you work for yourself or freelance, remember to deduct taxes and save that amount for when you file.
Step two: List out your fixed monthly expenses. This includes things like loans, rent, credit card debt, cell phone and internet bills, utilities, tenant insurance, parking, car insurance and pet insurance, (things that cost the same each month).
A general rule of thumb is to keep rent under 30% of your total income. If you’re paying rent with your credit card through Get Digs, remember to set that amount aside every month for your credit card bill to avoid paying interest.
Step three: List out your variable and discretionary expenses with the average monthly cost for each item. These include things like your groceries and entertainment.
It’s a good idea to go through your bank statements line-by-line to see your actual costs and not just approximate the amounts from memory. With pre-paid authorizations, it’s easy to forget how much expenses like your digital news subscription and streaming services cost you on a monthly basis.
Step four: Subtract both your fixed and variable expenses from your income. The amount leftover each month is what you should put into savings or think about investing.
If your income doesn’t cover your expenses, check out our COVID-19 Resources for Renters for information on programs available to supplement your income and help you pay your bills.
If you’re living paycheque-to-paycheque it’s easy to feel like your money is an amorphous thing that floats in and out of your life that’s beyond your control. The simple act of tracking your expenses can help you feel more in command of your spending and evaluate how you feel about your habits. When you add up how often you order food on a weekly basis, it’s easy to see if you’re comfortable with the total. If you’re lucky enough to have savings, track your expenses and try adhering to the 50/30/20 rule: spend 50% of income on needs, 30% on wants, and 20% on savings.
Online tools are available for you to get a better handle on your variable expenses and find savings. For example, RBC’s Wellspent allows you to link your debit and credit cards and see all your expenses in one place. You can reflect on each purchase and use the app to ask yourself (and track) - was this worth it? Does it make me happy? Do I regret this purchase? By identifying the regretful purchases you can start to change that behaviour and start saving.. You can manually add transactions if you don’t want to link your cards or if you use cash. If you’re wondering if your spending is out of hand, the Financial Consumer Agency of Canada provides a budgeting tool that allows you to compare yourself to Canadians in similar income brackets.
Lastly, remember that now is not the time to beat yourself up over what you could have saved in preparation for this global emergency. Many Canadians probably started 2020 off with the best of intentions to manage their expenses. These days, it’s more likely we’re alternating between googling coronavirus facts and wondering when we can see our friends and family again. While many details are still unknown, your finances don’t have to be one of them. If we’ve learned anything from these uncertain times, it’s that more information is better and taking some form of action can alleviate anxieties. Creating a budget won’t give you a better idea of when social distancing will end, but it will help you plan for the future.
This article offers general information only and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by RBC Ventures Inc. or its affiliates.