For this edition of“Ask a Financial Counsellor”, we are going to talk about budgeting and regaining control of your money in this complicated, high-inflation world.

I’m Stacey, and I’ll be your guide on this adventure!

Budgeting is an essential skill for managing personal finances effectively. Whether you’re saving for a major purchase, paying off debt, or simply aiming to live within your means, having a clear understanding of where your money is coming from and where it’s going is key. One of the most important things we should focus on is manually building a budget to follow, and then tracking your spending. I have found that the most effective tool for this is a 3-column ledger, which helps you track money in, money out, and what’s left over. By writing out what you need to spend, you are better able to see how you can afford to spend on the things you want to spend on. For this  blog, we’ll explore how you can learn to budget using a 3-column ledger and begin the process of taking control of your finances.

To start with, a 3-column ledger is a simple yet powerful little book. It consists of three columns: one for recording money coming in (income), one for money going out (expenses), and one for calculating what’s left over (balance). Typically, it will look something like this:

You can label the columns any way you choose to personalize it and try to make it more fun (only us crazy personal finance people find this sort of thing fun!) and I always encourage using different colour pens to mean different things. For example, account name in blue, income in green, expenses in red, and balance in black. This makes it easy to see, at a glance – what you are working with and helps you hold yourself accountable.

The next thing you need to do is be prepared to be brutally honest with yourself. Make a list of all your required expenses: rent/mortgage, insurance, groceries, gas, heat, power, credit card payments, loan payments, cell phone, internet, vehicle payment, etc. These are the things you must pay every month. Then look at your take-home income – what your paycheque is after taxes? . Are you scared yet? Trust me, that’s a normal reaction. Cards and a mostly digital society makes it really easy to not pay attention to what you spend and when. Financial freedom comes from understanding how you spend your money  –and why – and being willing to correct any imbalances.

After you have written out your list and working through the likely heart attack that came with it, you are going to start your ledger. I recommend dividing up your bills by pay period, because it makes it easier to ensure none of your bills are overwhelming or you find yourself under the gun as it were. This includes salaries, wages, bonuses, tips, freelance earnings, and any other sources of income for that period – be sure to include both regular and irregular sources of income to get a comprehensive overview of what the pay period looks like. List the sources of income in the “accounts” column, and their corresponding amounts in the “income” column – like this:

Next, you’re going to look at that expense list. Yes, the one with all the scary numbers. Now divide those numbers in half (Author’s note – the example I’m using here is a standard bi-weekly pay schedule, this can be adapted for any pay schedule however). Those numbers look a little less scary now, right? This is the first step in understanding your limits. So now, you put those split expenses into the expenses column. That will look a little like this:

Once you’ve recorded your income and expenses, you now calculate the balance by subtracting the total expenses from the total income. This will give you a clear picture of how much money you have left over after covering all your expenses. In the example I’ve built up, there is a bi-weekly income of $1679.87, and expenses that total $1577.35. So, by following this example, there is a positive balance at the end of the pay period of $102.52. So the overall ledger for this bi-weekly example would look like this:

So, what does this example tell you about this person? It tells you that while their overall expenses are high, they still have an extra $100 to work with every month. Now, I could be a good financial counsellor and tell this person that they should put at least half of that extra into savings – and make no mistake, that is absolutely my personal recommendation – but what will more likely happen is this person now knows that they have $100 of extra money. Most people would then use this as “fun” money. And you know what? That is also okay. Everyone deserves to blow off steam. The trick is to ensure you spend it AFTER all your obligations are met.

This isn’t a quick fix. Getting yourself on a solid budget schedule is a lot of work, and it does take time. Every pay you pull out your ledger, track all your money, and ensure the bills are paid. But the freedom you can get from taking the time to follow these simple steps is absolutely worth it. Be consistent. Be honest with yourself. And take control of your money.

Until next time!

Stacey

Got a question? Email: [email protected]