Budget Your Way to Wealth

Learn how budgeting and financial literacy pave the path to wealth & freedom of choice.

Last night I overheard my daughter gently chastising her father, “Dad, don’t press too hard with these markers, they were very expensive.”

A few weeks back, we started discussing buying alcohol-based markers. She explained the colour is more intense and they have a longer life. These things are important to her as she loves to draw, create and craft stories.

During our conversations, Ms. A. also shared she felt these were a want, not a need: she would pay for them with her savings. To clarify, she receives a monthly allowance that’s deposited directly into her bank account.

My frugal heart nearly burst with joy and pride. Not because Ms. A was going to pay for the markers (FYI, in the end, we split the cost), but because she understood the difference between a want and a need. It’s important to us that we raise a kid who’s smart about her money choices.

Also, Ms. A’s allowance isn’t for completing household chores—emptying the dishwasher, making her bed, cleaning a bathroom or two—that’s her contribution to our family. This money is there to help her understand the opportunity cost of spending, saving and (eventually) investing.

Frugality and money management are lessons I learned early too. I recall sitting at the kitchen table with my mom watching her circle specials in the weekly grocery flyers. Folks, my mom is the original Frugalista. When I was my daughter’s age, my dad worked full-time as an RCMP officer and pursued his MBA in Finance in the evenings. By default, mom adopted the role of Household Controller.

Many years later, when I moved into my first apartment, I bought a spiralled notebook where I tracked my expenses and savings. With my father’s help, I had already started investing money into mutual funds. Full disclosure, I didn’t know much then about the technical aspects of mutual funds, (the 411 on mutual funds vs. ETFs merits an article of its own), but I was lucky to have a mentor in my dad.

Every month, I listed out my expenses…rent, heat, groceries, emergency savings, RRSP. Yes, emergency savings and long-term investments were (and are) a core part of my/our budget. Here’s the thing, if you budget for short and long-term savings after you’ve allocated the fixed and discretionary parts of your budget, you’re way more likely to give them a miss.

It’s too easy to push them aside for next month’s budget. Especially, in your 20s.

Back then, I pretty much lived in pubs, clubs, music venues, theatres and restaurants. Given carte blanche to spend my budget and then use the residual for savings, well, there wouldn’t have been a whole lot of savings happening.

Now, in my 40s, I still have a version of that notebook, except it’s called an excel spreadsheet. If you’re interested in getting a copy of my budget template, contact me. Very happy to share it with you! It’s not rocket science; in fact, it’s really simple. As it should be.

Every month, I set a budget (based on past months’ expenses) and provide a target goal for non-fixed categories like groceries. To be kind to myself (and our family), we have a +/- 15% target.

Here’s the magic: by tracking our expenses, yes all of them (even the milk & bananas mid-week purchase), we’re more inclined to really think about how we spend our money. Our food budget (primarily groceries, restaurant meals are definitely a treat) is our second biggest expense, but we eat exceedingly well.

That’s because we plan our grocery trips around a weekly meal plan. More often than not, it’s influenced by what happens to be on sale and in-season that week (my mother’s flyers have been replaced by the Flipp app).

Tracking our expenses over the last several months, we’ve managed to reduce our food costs by 20%. Simply, by employing these simple hacks.

That money is now being funnelled into my daughter’s RESP. Btw, if you can find $208 per/month (per/child), the gov’t will top that contribution up by 20%. That’s a 20% return—freaking amazing, really. Invest it and now that money is working for your kid(s).

In case you were wondering, we don’t miss that $200. Guaranteed, we’ll appreciate its value when/ if our daughter pursues a post-secondary education.  

My fervent hope for Ms. A. is she will recognize and adopt our disciplined approach to financial management. Not to garner the title of Ms. Frugalista—although as crowning achievements go that could be the new cool—but to allow her to sleep better at night, to truly value and appreciate what she purchases, and ultimately, have the financial freedom to design a life that fulfills her aspirations.

That’s what budgeting, financial management and financial literacy really boils down to: freedom of choice.