Budgeting for Long-Term Financial Health

When it comes to managing your money, budgeting isn’t just a quick fix. It’s not meant to be used for just a few months to pay bills when money is tight. Instead of looking at it as a short-term solution, think of budgeting as a way to build a secure future.

At Credit Canada, we teach a budgeting approach that aims to build financial stability not just now, but for years to come. This approach is called sustainable spending and the goal is to create a system that helps you avoid debt and manage your cash flow effectively over time.

Sustainable spending shouldn’t be confused with green spending, it’s our unique approach to budgeting that ensures long-term financial health. It’s the foundation of Credit Canada GOLD’s innovative financial coaching program that leverages behavioral science to help you get out of debt and back on track with life. Read on to learn how sustainable spending can help you create a budget that works for the long term.

What is sustainable spending?

Budgeting can be difficult and intimidating for many people. Sustainable spending provides a more accessible way to budget, especially for those who struggle to stick to a budget. Instead of tracking every penny, sustainable spending is about looking at your income and expenses and creating a sustainable plan over time. This approach gives you a clear picture of your finances, so you can see if your spending is in line with your income and goals.

The sustainable spending approach is simple, provides stability and flexibility as your income and expenses change over time, encourages responsible spending habits, and ensures you live within your means and don’t take on more debt.

The Benefits of Sustainable Spending for Long-Term Financial Health

Using a sustainable spending approach has some major benefits when it comes to your long-term financial health, including:

Reduce financial stress

Managing your spending sustainably can reduce financial anxiety. When you follow a budget and make wise spending choices, you’re less likely to encounter unexpected expenses. This means less stress about how to cover surprise costs because you’re prepared for them.

Improve savings and achieve goals

Sustainable spending can make saving an easy part of your financial routine by helping you prioritize your goals. Having a clear budget makes it easier to allocate money to immediate needs and long-term goals so you can save for what matters most to you, like retirement or a vacation.

Avoid debt cycles

Spending wisely is crucial to avoiding debt. When you budget wisely and save to buy what you want, you are less likely to rely on credit cards or loans. This prevents you from taking on high-interest debt, which can take months or years to pay off. By using a sustainable budget, you stay in control of your spending.

Sustainable Spending Method

Sustainable spending is about understanding where your money goes to ensure you stay within your budget over time. The approach consists of three stages: analysis, brainstorming, and change. Here’s how it works:

AAnalyze: Take a close look at your income and expenses. Try to understand how much money is coming into your account and where it is going. Then you can see if you need to increase your income or reduce your expenses.

forrainstorm: Think about ways to improve your cash flow, and ideas that might help you earn more and spend less. Consider setting goals, such as saving for emergencies or paying off debt.

GHanji: After doing some analysis and brainstorming some ideas, commit to making positive changes to improve your cash flow. Even small adjustments can lead to big gains over time!

“Sustainable spending is about practice, not perfection. Use the ABC method to constantly check in with yourself to see if you are living within your means.”

Becky Western-McFadden, Director of Financial Training, Credit Canada

Practical steps to create a sustainable budget

Once you understand the basics of sustainable spending through the analysis, brainstorming, and change method, it’s time to put these principles into action. To create a budget that works for the long term, you’ll need to:

Evaluate your current spending.

Like many people, you may not know where all your money goes after covering the obvious living expenses. We suggest you keep track of all your expenses, however, this is not a requirement for sustainable spending. Try to include expenses you tend to overlook, or even your vices. We have no judgment. Include smoking, alcohol, and gambling. Tell yourself the truth.

To assess your current habits, try tracking your spending for at least a month (two to three months is best). By doing this, you’ll be able to see where your money is going over time and identify any unsustainable spending habits, such as impulse buying or overspending on unnecessary purchases. Consider writing down what you spend week by week in a notebook. This will help you create a detailed spending plan that you can follow in the coming months.

Prioritize

When it comes to managing your money, multitasking isn’t always the best solution. In fact, many people manage to accomplish very little with their budget when they try to do too many things at once. To achieve sustainable spending, it’s important to narrow your focus to what will make the biggest difference in your finances and reduce stress. You can’t do two things at once—you have to prioritize. Once you’ve tackled one priority, you can move on to the next, and so on. Here are the priorities we suggest you work through:

1. cash flow: Do you earn more than you spend?

2. religion: Have you eliminated all credit card debt?

3. Savings: Do you contribute to your savings regularly?

4. Taxes: Do you benefit from tax exemption and tax advantages?

If yes, move on to the next priority until you’ve completed each one. If no, go back to the alphabet and brainstorm possible ways to address them. Maybe you need to increase your income or cut your expenses. The basic principle of personal finance is that you need to live within your means, over time. Working on these priorities (one by one) will ensure that you have a strong foundation for your financial future.

Create an emergency fund

Saving for emergencies is an important part of sustainable spending. An emergency fund is money you set aside to pay for unexpected expenses that are usually unforeseen and often urgent, such as medical costs, car repairs, and vet bills. The fund should contain enough money to cover your living expenses for several months, depending on your situation.

To build an emergency fund, set aside a fixed amount each month to a dedicated savings account as part of your budget. You can set up automatic monthly transfers with your bank to make this easier. If you end up using your fund for an emergency, make sure to prioritize replenishing it so you’re ready again in the future!

Create clear financial goals

Setting financial goals, such as paying off debt or saving for retirement, helps align your spending habits with your long-term goals. When you have clear goals, you know exactly where your money should go, which can make it easier to manage your cash flow. For example, if you’re focused on paying off debt, prioritize allocating money toward paying off that debt instead of spending on unnecessary things.

When setting financial goals, remember that they should be SMART, specific, measurable, achievable, realistic, and time-bound. These five criteria are important because they help turn your broad aspirations into concrete steps, making it easier to stay motivated.

Use budget tools

Using an online budgeting tool, app, or even a simple spreadsheet can help you stick to your spending plan and track your progress toward your financial goals.

There are many tools and apps available online that can help you create a realistic spending plan, including Credit Canada’s free Budget Planner . With this tool, you enter some basic information, enter your expenses, and the tool does the rest. It will give you a complete breakdown of what you spend your money on each month, and how it compares to your budget. You can also use the comprehensive expense tracker to help you estimate your savings needs for regular and irregular expenses.

Adjust as your expenses and income change.

At the end of each month, go home and compare what you planned to spend with what you actually spent. This will help you track your expenses and make adjustments as needed. Also remember to review your income regularly, as it may fluctuate as you get raises, change jobs, take on side hustles, etc.

You’ll need to manage your cash flow so that every dollar has a purpose—whether it’s paying bills, saving, or investing. So before you consider splurging, take a hard look at your spending to make sure you’re managing your money for the long term. If you have money left over at the end of the month, decide whether to add it to your emergency fund, save for a vacation, or contribute to an RRSP or TFSA. Saving money now will help make your future goals a reality.

Common Budgeting Mistakes to Avoid

When building a budget, you’ll need to avoid some common mistakes to ensure your spending plan is sustainable, including:

Relying on credit for daily expenses

Relying on credit for everyday expenses can create a vicious cycle of debt that’s hard to escape. One of the risks is the high interest rates on credit cards. If you don’t pay your balance on time and in full, these interest rates can quickly add up, making your purchases more expensive over time.

Relying on credit also masks cash flow problems. Credit may make you feel like you have extra money, but you’re actually spending more than you earn. That’s why it’s best to use credit wisely, pay off your balance in full each month, and stick to a budget where you spend within your means.

Not tracking small expenses

Not keeping track of small expenses can easily derail your budget. Small purchases like coffee, snacks, cigarettes, gum, etc. can add up faster than you might think! These expenses may seem insignificant, but together they can put a huge strain on your finances. While you don’t have to count every penny, keeping track of your expenses will help you live within your means so you can stay credit-free. Consider limiting yourself to using cash only for small purchases so you can be more mindful of what you’re spending.

“I learned what my main triggers are for impulsive spending and how to recognize patterns before they start. I’ve always struggled with budgeting and found a sustainable spending plan much easier to manage.”

– Credit Canada Gold Program Participant