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Mastering Money: Tips For Creating a Budget That Works For You

By Jacob Henriksen-Willis

Published July 10, 2023 • 4 Min Read

Managing personal money matters is a major source of stress for many Canadians. If you’re one of the many who find themselves losing sleep over their finances, one of the quickest ways to alleviate some of the pressure is to get organized by creating a realistic budget that works for you. Gaining control of your finances can help reduce unwanted surprises and offer some peace of mind each month.

If you’ve struggled to maintain a budget in the past or are starting one for the first time, here are three helpful tips to guide you toward your financial goals.

The 50/30/20 rule

Take a look at your paycheque each month, and evaluate how much of your take-home pay (your income after taxes) is going towards your needs, how much is going towards your wants, and how much you’re saving.

  • Your needs are the basic necessities of life. Housing, food, transportation, health care and child care are all good examples. According to the 50/30/20 rule, the average budget allocates about 50% of take-home pay to these fundamental needs.

  • Your wants are all the fun stuff. Vacations, streaming services, entertainment systems, dining out, etc. A typical budget can afford to spend 30% of income on these optional items — but if you need to cut down on spending, this should be the first place to look.

  • The remaining 20typically goes towards your savings and debt repayment. Your savings can include a retirement fund, emergency fund or a personal goal like homeownership or a degree. The less debt you have, the more of this 20% can go towards the long haul.

Of course, these percentages are just suggestions. With this rule as a baseline, it’s a good idea to adjust your budget based on your personal circumstances.

Create SMART Goals

SMART is a handy acronym to remember when setting achievable, realistic financial targets. To break it down, a SMART goal is:

  • Specific: Having a clear, focused goal to reach helps you align your efforts and resources accordingly.

  • Measurable: Make sure you can track your progress objectively. This will allow you to celebrate milestones and accomplishments along the way and get a good sense of the effectiveness of your budget plan.

  • Attainable: It’s noble to shoot for the stars, but if you really want to stick to your budget, your financial goals should be within reach. If you do have something lofty in mind, maybe set smaller, more achievable goals first to work up to it.

  • Relevant: Achieving your financial goals should accomplish something important to yourself or your family.

  • Time-bound: Set a specific timeframe to achieve your goals. Some people use deadlines to focus or create a sense of urgency, but time-bound goals give you a benchmark to measure against as well as a finish line.

Review and adjust regularly

Circumstances change, and sometimes things just aren’t working. Allowing yourself some flexibility in your budget will prevent you from throwing the whole plan away if you aren’t reaching your milestones at first.

Regular budget reviews will also help catch unnecessary expenses earlier. For example, unused subscription services can often eat into your income for months if you aren’t checking up on your expenses often.

Analyzing your spending patterns can make your long-term planning easier and more effective. With a good sense of your financial habits, strengths and weaknesses through regular reviews, you can make a personalized budget that syncs with your life goals.

RBC’s NOMI budgeting tool makes personal finance easier by recommending a budget based on your spending and saving habits — and then actively helping you stick to it.

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy 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 Royal Bank of Canada or any of its affiliates.

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