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How to Budget Your Way to Financial Freedom

While budgeting can be really difficult, budgeting is so important for your life, business, and financial freedom.

For the longest time, I had a deep resistance to creating and sticking to a budget. I figured, “As long as I’m paying my bills on time and saving some money, I’m ok!”

“Who needs a budget?” I thought. I was doing just fine getting by without one. On top of that, my initial reaction to a budget was that it was too restrictive and limited. I didn’t want to feel like I couldn’t spend my hard earned money on what I wanted.

It wasn’t until I got serious about reaching financial freedom so I could quit my 9-to-5 job that I started taking budgeting more seriously. 

Imagine not having to worry about whether or not you have enough money to pay for a night out on the town with your friends, or that cute blazer you’ve had your eye on. Imagine being able to spend freely without guilt because you already have money set aside in your bank account. 

The bottom line: if you’re looking to reach financial freedom, you need a budget.

In this article, we’ll explore:

  • Why a budget is so important to achieving financial freedom
  • Eight tips for creating a fantastic budget, including tips for managing your expenses, debt, savings and investments

You can rest easy knowing every dollar has a purpose and feel confident in your spending decisions. That is the power of a budget.

Why You Need a Budget (Yesterday!) to Achieve Financial Freedom

If you don’t budget regularly and you’re like me when I didn’t have a budget, you’re probably unsure about where your money goes by the end of each month.

The feeling is comparable to a cup of water with little holes in it.

Water, your income, is going in the cup, but it’s also leaking out faster than you can fill it up. This puts you in a never-ending cycle of trying to catch up with your finances and spending your money quicker than you can make it.

To make matters worse, if you have an emergency or unexpected bill that comes up that you’re not prepared for, you feel even more helpless.

Enter: budgeting!

Getting on top of your finances and staying on top is the key towards financial freedom so no bill will go unpaid and every unexpected surprise can be handled.

8 Tips for Achieving Financial Freedom Through a Budget

The idea of putting a budget together may seem absolutely terrifying—trust me, I’ve been there.

Where do you start? How do you get a handle on everything such as savings accounts, investments, and tackling debt?

Here are some of the tips I’ve learned over the years to help me budget and achieve financial freedom.

Tip #1: Change your mindset around budgeting

The first step to successfully budgeting starts with changing your mindset. I had to completely change how I viewed the budgeting process to see it as an opportunity rather than a hassle.

Instead of continuing to see budgeting from a perspective of limitation and scarcity, I chose to look at budgeting from the outlook of freedom and abundance.

If I knew exactly how my money would be spent and where it would be going, this would allow me to feel free and ease the anxiety I had around money.

This is the mindset shift you have to make if you’re resistant to the idea of budgeting. It may take some practice and seeing the returns before you fully buy in on budgeting, but now that I have, I’m never looking back!

Tip #2: Track your spending

Another important early step in creating a budget for financial freedom is establishing a baseline. Where does your money go each month?

Start by taking a look at your account statements. How much money did you earn last month? How much of it is reliable fixed income (such as a paycheck), and how much of it is income that’s a little less predictable (contracts, side projects)?

Next, take a look at how you spent your money last month and break up your spending into key categories, such as:

  • Mortgage or rent
  • Bills and utilities (electricity, gas, water, internet, cellphone, insurance, etc.)
  • Food and groceries
  • Debt payments
  • Leisure
  • Any other categories that apply

Once you’ve separated your spending into categories, it’s easier to look at your spending at a glance and see any glaring issues that may stand out. For example, how does your spending compare to your income? Are there any amounts that surprise you?

Tip #3: Distinguish between wants and needs

Now that you’ve created categories for your spending, take a magnifying glass to your expenses and see if there are any you can cut or eliminate completely. Separating between wants and needs is a simple way of making those opportunities clear.

For example, consider that last food delivery service you ordered. Is this a weekly ritual you have with your partner that brings you together? Or was it a moment of weakness where you felt too lazy to cook despite having stocked cupboards?

For your expenses that are discretionary, like things outside your mortgage/rent, bills, etc., which are the most important? Which bring you the most joy?

If you’re not sure to start, for each discretionary expense from the past month, rate it on a scale of:

  • Importance, from 1 (not at all important—why did I even spend money on this to begin with?!) to 5 (extremely important)
  • Joy, from 1 (no joy—again, why did I buy this?) to 5 (amazing, much joy, 10/10, would buy again)

Keep this rating scale in mind out of 10 in total the next time you pull out your credit card. If the item you’re about to buy is a 5 out of 10 in total between importance and joy, could you consider putting the card down instead of making the purchase?

Tip #4: Pay off debt as soon as possible

Part of your goals for financial freedom should include paying off any debt you may have as soon as possible, since it’ll help you increase your monthly savings previously going toward debt payments.

There’s no freer financial life than being debt free!

One way of doing this is through snowball debt payments. This involves tackling the debt payments you feel like you can handle first to give yourself small wins and momentum towards financial freedom and handling your bigger debts.

Another way is the total opposite way of handling debt, which is tackling your debts with the largest interest payments first to increase your spending power sooner.

Both avenues are completely valid and depend on the person. Only you know which one will work best for you!

Tip #5: Establish savings goals

While being mindful of your expenses is a big part of budgeting, creating goals for your savings is just as important to reaching those financial milestones, such as buying a house, creating a rainy day fund, or setting your kids up for university.

A general rule of thumb is to aim to save at least 20% of your monthly income. Another is to have three to six months’ worth of expenses saved for your emergency fund.

If neither of these rules feel achievable, don’t worry—now is a starting point to get there, and take another look at your expenses to figure out whether what you deemed as a need truly is a need.

For your savings milestones, what are you hoping to achieve? What big purchases are you expecting to make? 

Once you’ve established your saving goals:

  1. Set a dollar amount for what you’d like to save (e.g. $5,000 for a down payment on a car)
  2. Set a date for reaching your savings goal (e.g., June 2023)
  3. Open a savings account specifically dedicated to your goal and contribute any savings you already have set aside
  4. Determine the monthly amount you need to save from there (e.g., I already have $2,000 saved. Therefore, over 24 months to save the remaining $3,000, I need to set aside $125 per month to reach $5,000 by June 2023)

Repeat these steps for each savings goal. Do you have enough room in your budget to save the money you want for each goal? If not, what needs to give—your savings expectations, or your spending?

Don’t forget to include retirement in that picture. It’s easy to leave out saving for retirement when you have other goals in mind, especially if you’re 30+ years from retirement. However, it’s never too early to start saving—your future self will thank you, especially if those savings are invested over time in an RRSP (we’ll get to that).

Tip #6: Automate your savings

One of the easiest ways to save is to make it out of sight, out of mind. When your contributions are done for you, saving can be a stress-free experience.

For example, consider the $125 per month example we just used towards saving a car. You could open a TFSA specifically for that goal and automate $125 payments from your checking account to your TFSA each month at a time that works best for you based on your other automatic payments.

If you’re setting up automatic payments for all your savings goals, make sure to space out your payments appropriately so that these withdrawals don’t place a burden on your checking account all at once!

Tip #7: Create an investment plan

Another appropriate avenue for budgeting your way to financial freedom is allowing your money to make money through investing.

If you have medium or long-term financial goals, compounding interest through investing can significantly reduce the time and money needed to reach them—and the earlier you start, the better!

While a diverse portfolio with a mix of stocks and bonds is always a good approach, your investments will depend on a number of factors, including whether you want to go with a fund manager vs. robo-investing, your financial literacy, your risk tolerance, and more.

So it’s best to do your research and figure out which approach is best for you.

Don’t forget to consider the tax implications of investing as well. For example, for your long-term investments you’re not planning on touching until you retire or until you make a down payment on your first house under the Home Buyers Plan, maximize your RRSP contributions first to see some nice returns at tax time each year.

Tip #8: Consider meeting with a professional

If the thought of handling an investment plan yourself has you in a cold sweat, don’t worry! 

You can reach out to a financial advisor, who can help you work through your budget and savings goals, you can determine which direction works best for maximizing your financial gains and setting up your investments to work exactly as you need them to.

You don’t have to reach financial freedom alone!

One Step Closer to Financial Freedom

Congratulations! You’re now well on your way to eliminating debt, saving more and investing more. This is the path to financial freedom—having a budget and sticking to it is critical to helping you get there.

You can choose to fly blind and sweat every time you check your bank statement, or you can choose to regain control of your life through the process of budgeting. Fellow creatives, the choice to reach financial freedom is up to you!

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