Budgeting Your Mental Health

Money Stress

Money is a major source of stress for most people. Budgeting can help you overcome that stress. This article reinforces some of the ideas we’ve talked about in other posts, and adds some new ones that didn’t fit with our other recent articles. We hope you find it useful. We want you to sleep well at night.

Basic Budgeting

Yes! A basic budget is something that very few people have. They may have an idea in their head about it, but it isn’t written down anywhere. Taking the time to create a basic budget can really help you sleep at night. Knowing where your money is coming from and going to – understanding your cash flow – makes things less scary. Remember, the first step to overcoming a fear is to address that fear.

Build a Basic Budget

Start by listing your cash inflow. These should be items that are regular, predictable and certain.  For most people, this will be their salary. However rental income, investment income and other types of income might be included. Don’t include things like lottery winnings, gifts or whatnot as they aren’t predictable or regular.

List out your basic expenses by month. These may include some of the following:

  • Housing costs (mortgage, rent, property taxes)
  • Costs of living (food, clothing, childcare)
  • Vehicle costs (lease, auto loan, gas, repairs)
  • Savings and investment requirements
  • Vacation plans (hotel, flight, food)
  • Luxuries (restaurants, vices, entertainment)

You don’t need to be super-detailed in listing things out, but the more detail you have the better you can understand trends and habits. For myself I include my hobbies, vices, restaurants, takeout and local vacations.

Once you’ve done outlining these items, you’ll be able to see your cash flow. Cash flow is the amount of money coming in less the amount going out. You always want your cash flow to be positive, but sometimes life happens and it can be negative. Hopefully, this is only for a month or two and you have emergency funds in place to get you by.

Have an Emergency Fund

Everyone needs an emergency fund. This is the money that will get you through the tough times. Everyone encounters months when their cash flow is negative. Perhaps you lose your job, your car needs an unexpected repair or you need clothes for a kid in a growth spurt. Your emergency fund is for these times specifically.

Budget in savings for your emergency fund every month, whether it’s full or not. I try to have six months of expenses in my emergency fund. Some people are comfortable with as little as three months, while others want a whole year. Make sure these funds are earning some kind of investment income (TFSA interest, cashable GIC, etc.) and are not stuck in a place you can’t get them such as your RRSP or a locked in GIC.

Once your emergency fund is full, you can use excess to save for your future, or for positive reasons such as taking a vacation.

Big Ticket Budgeting

Everyone buys big ticket items from time to time. This could be a car, a renovation, a vacation or many other things. Regardless, if you get surprised by a big ticket item, it can cause a lot of stress. By planning the timing and saving in advance, you can reduce or eliminate the stress of a big-ticket purchase.

Talk About Money

It’s very important to have frank conversations with yourself and your partner about money. If you don’t know yourself, or if you and your partner are not on the same page, money issues can create a lot of conflict and stress.

It’s difficult to speak about money. And it’s also difficult to be honest with yourself. Sometimes speaking with someone who thinks differently about money can help you understand your own faults.

Knowing your habits, measuring your results and understanding what behaviours are positive and which are negative can provide a lot of insight. This goes doubly when you’re in a relationship. If one person is working really hard to provide, and the other is spending money faster than it comes in, it creates resentment and can fracture an otherwise healthy relationship. If you and your partner are on the same page, you can pass along great opportunities to your children.

Teach Your Kids Budgeting

Something that is sadly absent from our education systems is financial education. None of us can be experts in everything to do about money. New financial products, new trends and new events out of our control happen every day. That being said, you can build strong foundations and pass them along to your children.

Your eight year old may not care about investment bank accounts enough to put down the remote controller, but tell them anyways. They’ll remember what you told them when they’re old enough to understand that more money means they can buy the best video game console.

Learn basic budgeting skills. Be a prudent planner. Lead by example, and teach your children along the way. The more comfortable they are with money, the less stress it will cause them later in life – and the less worried you’ll be about needing to support them as young adults.

Eliminate Money Fear

The biggest stress money creates stems from uncertainty. When you use these tools – budgeting, emergency funds and planning – and speak about money as a family, it reduces the uncertainty. Although it can’t eliminate all stress related to money, it can eliminate a lot of it. More importantly, it builds confidence. Confidence that you can make it through lean months. Peace of mind that you can afford that big ticket item.  And assurance that you know what’s happening with your money.

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