Written by Robin Taub

Tuesday, January 26th, 2021

When Lara was in her early twenties, she was still in school, or living from grant to grant, working for nonprofit organizations. She knew she didn't have much money, but she didn't pay a lot of attention to her spending, nor did she think about saving.

As she got into her mid to late twenties, she had a big "a-ha" moment.

"Where my money goes on a day-to-day basis was one of the biggest determinants of my long-term financial health," she realized. "I only have so much control over the money coming in the door, but I have near total control of the money going out the door. I need to track that if I want to make changes."

According to the Financial Consumer Agency of Canada (FCAC), tracking your spending and budgeting can also help you set spending limits, find ways to pay down debt, lower your expenses and save more, live within your means, reduce stress, and have more money for the things that are important to you.

How I Budget Starts with Tracking Spending

Lara started by tracking her spending. Although she was always conscious of her spending and knew she didn't have a literal "latte factor," she still thought there would be things she'd discover.

She started by using an app. Although she can see how apps, online budget planners or calculators work for some people, the app wasn't the right tool for her. She prefers to use a templated spreadsheet on her computer for tracking and reviewing her spending, and downloads her bank account and credit card statements monthly.

"At the end of every month, I review all of my purchases line by line, inputting them into the proper categories in the template." It takes about 40 minutes every month. She only uses two-thirds of the template's budget line items, but keeps the unused budget categories to remind her of potential future expense, like pets, a car or kids.

She's been tracking now for several years, but within a few months she started to feel the difference. "I feel very much in control of my spending, and I feel like I have a very clear idea of what I'm spending my money on," says Lara. "With this information, I can decide if I'm ok with my spending or not. If I'm not, I'll try to consciously make changes."

Spending with My Values in Mind

"There are definitely some months where my spending is high, and others where it's low," she explained. "You start to see patterns and it becomes predictable." For example, she sends gifts to her friends and family throughout the year, and not just around the holidays. Her gift budget is high, but it's not a surprise. It's planned and it aligns with her values. When you know what your values are, spending decisions feel easier and more intentional, and the goals you set are more meaningful.

By tracking her spending, Lara has noticed that her food costs have gone way up since the beginning of the COVID-19 pandemic. She's spending more on groceries and take out, because she's no longer spending in other areas like entertainment. Once again, she's made a conscious decision, in line with her values, to spend more on high quality food and support local food stores and restaurants, and to spend little or nothing in other areas, like makeup, clothing or accessories. Another category impacted by COVID-19 is travel. It's normally a big expense, but in 2020, Lara managed to save a lot by not travelling.

Make Saving a Regular Habit

Lara spends less than she makes and already has an emergency fund, but now she wants to set up a deliberate savings program, such as a monthly automatic transfer to a dedicated savings or investment account.

Her goals include saving for a down payment on a house and for retirement, so she's considering making automatic transfers to a Tax-Free Savings Account (TFSA) and a Retirement Savings Plan (RSP).

What I Know Now and Wish I Knew Then

"I think I would have started earlier in my 20s," she explains. "There's a sense that if you don't have a lot of money coming in the door, what's the big deal? I was thinking, 'Just spend below the amount that's coming in. Wait for that big more secure job when you'll have enough money to actually have savings. I don't really need to worry about this yet,'" she says.

"But your twenties are formative years for setting good habits and one of those good habits is to budget. Even if it only means moving $20 to savings each month, it's meaningful, so don't underestimate it."