Let's talk about that dreaded b-word: budget.
It's the most powerful tool in our financial toolkit -- so why do so many of us run screaming from this exercise? At its most basic level, it's a personal money plan requiring a little bit of addition and subtraction. It's a plan that allows you to take control of your financial situation and live within your means.
November marks Financial Literacy Month in Canada, a time to reflect on financial habits and learn more about making smart money decisions. November also happens to coincide with the start of one of the most hectic and expensive times of year.
But the holiday season doesn't have to be a financially overindulgent time. Living within your means is the golden rule of good financial management and also happens to be the focus this week for Financial Literacy Month 2016. Spend less than you earn, right? It is a lot easier in theory than it is in practice -- especially if you're a student who may not have money coming in regularly.
It took me a while to figure out just how much a simple budget can help. In my younger days, with limited money to spend, I would inevitably overspend every single December. In my head, I rationalized "Everyone is in the same boat. We're all over spending. I'll just pay it back next year". Not so easy. In one particular January, I had to miss out on taking a great weekend vacation with my friends, because I had simply spent too much over the holidays. It was a tough lesson to learn and I vowed that year I would never repeat it again.
Few students (or anyone) want to be a total Grinch, miss out on the festivities or hold back on the giving spirit during the holidays. That's why it's important to plan for it and there's typically two ways to do this (and if things don't go as planned, you might have to dip into your "oops fund" -- which hopefully you have -- more on that in a minute):
Earn more: The malls are hiring! Picking up a few seasonal shifts is a great way to earn a little more cash to pay for all the extras at this time of year. You might even score some great deals through an employee discount. Working also helps place a tangible value on money and reduce impulse purchases. However, think about how a part-time job will affect your school-work and time for studying.
Spend mindfully: Consider making November a 'no (or low) spend month' where you only spend money that is absolutely necessary (think: transportation to school, rent and utilities). This strategy will help you cut out spending on non-essentials, and helps you to be more mindful of all the little things you might be purchasing without a lot of thought. Reserve your credit or debit card for emergencies only, and switch to a weekly cash allowance to put your spending habits in perspective. This takes diligence, and by limiting your spending now, you'll save up a little more so that you can spend wisely during the festive month of December.
Still, despite our best intentions, things don't always go as planned. Every good plan has a Plan B. In this case, an "oops fund" is your Plan B of money you've squirreled away for unexpected costs, the ones that you didn't think of. There are many tempting holiday costs that are fun, but frivolous, and it wouldn't be wise to use this fund to pay for unnecessary items. Instead, think of your oops fund strictly as something you dip into as a last resort option -- if you went over your data plan (oops), spilled egg nog on your laptop (oops) or that professional outfit required for a job interview (oops). It's also a great learning moment to help you plan for next time.
It's also a good idea to track all of your holiday spending this year so that you can have a better understanding of how much extra you're spending. This way you can plan accordingly next year.
The first year I set up a holiday budget was the beginning of my love for budgeting. Having planned out the gifts I needed to buy, and considering my income sources, I knew exactly what I could afford. And I treated it like a game to match my budget. I even set up a reward for myself in the New Year if I beat it. It helped me make better decisions when I was looking at that delightful indulgence in the window. And the best part is that I could actually afford my annual girl's weekend away the next year.
What kinds of costs do you anticipate might come up during the month of November and December? Share your holiday spending plan and how you plan to live within your means this holiday season with us on Twitter @RBC_Canada. #FLM2016 and #ItPaysToKnow
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