Hello everyone, and welcome to the Retiring Canada Podcast. In today’s episode, we're going to discuss the most dreaded word in personal finance: budgeting.
Specifically, we are going to cover:
- My own budgeting journey and its lessons
- Why pre-retirees need to budget before they retire
- The core budgeting principle to live by
- Three options to get started
- A few actionable items for you to consider
I hope everyone is enjoying their fall! This time of year is my favorite—moderate temperatures, falling leaves, hunting season, and some mighty fine seasonal beers. If you enjoy beer, I highly recommend a seasonal brew from Rebellion Brewing Company called Cat’s Got the Cream. It's like the adult version of the pumpkin spice latte from Starbucks. If you live in Saskatchewan or can track it down, give it a try!
Alright, let's dive into today’s topic: budgeting. I promise to keep this episode brief to avoid scaring you off!
I know there are some of you, especially those who love spreadsheets, who enjoy budgeting. But for the rest of you—let's say 90% of you who haven't made a budget in the last 12 months—this episode is for you.
Budgeting can be challenging, especially if you're not a numbers person. However, having a budget, or cash flow management, is crucial for setting financial goals. Without knowing where your money is going, how can you ensure you're saving enough to retire or that you won't run out of money once retired?
In my early 20s, I had a wake-up call when I realized I was spending way more than I was making. I had racked up about $8,000 in credit card debt. The turning point came when I printed six months of bank and credit card statements. I spent two hours highlighting necessary expenses in green (non-discretionary spending like groceries, rent, and insurance) and discretionary expenses in red (things like trips, golf, and dining out). Seeing how much I spent on non-essential items was a real eye-opener.
I share this story to illustrate that most people will need to take ownership of their finances at some point. Even if you don't love numbers, a simple budgeting exercise can help you see where your money is going.
I challenge you to print your last six months of debit and credit card statements, highlight non-discretionary expenses in green, and discretionary expenses in red. If the page looks like it's bleeding, add up those red expenses and see what you find.
Sometimes, we're aware of poor spending habits but are too scared to confront them. If you follow one core principle—spend less than you make—you won't need to budget as meticulously. Spend less than you make and do something smart with the difference, like paying down debts, adding to savings, or investing.
For those retiring in the next five years, creating a budget is crucial. I encourage you to listen to my past episode, "5 Years & Counting: Checklist for Retirees," where I discuss important expenses to consider as you near retirement.
The first 5-7 years of retirement tend to be the most expensive. Knowing how you spend your money during this time can make the difference between retirement success and failure. You can't control markets, interest rates, inflation, or politics, but you can control your spending.
Now, here are three options to get your budget started:
Option 1: If you prefer working with paper, print your last six months of debit and credit card statements, highlight non-discretionary and discretionary expenses, and add everything up. Compare your spending against your income.
Option 2: If you prefer an online tool, try the CRA budget planner. It's intuitive, easy to understand, and does all the math for you. It will guide you through a step-by-step budget process and provide feedback on how to stay on track.
Option 3: For Excel enthusiasts, try the free budget worksheet from mymoneycoach.ca. It's interactive, user-friendly, and provides helpful guidelines for each spending category. This option helps you identify budgeting pitfalls and offers solutions to fix them.
Check the show notes for links to these resources.
Alright, that’s the end of today’s episode. Short and sweet—hope it wasn't too painful!
Here are your action items:
First, if you haven't reviewed a budget in the last three years or are within ten years of retirement, choose one of the options above, roll up your sleeves, maybe have a beer and some Bandera bread from Boston Pizza to ease the pain, and get to work. This exercise will greatly improve your money mindset, especially given the impact of inflation and interest rates on our lives.
Second, go for a walk and reflect on your spending, your relationships, and your personal and financial goals. Taking an honest look at where you are, making a plan, and being consistent will help you get the most out of life.
For links, resources, and your complimentary “one-page plan,” please check out the show notes or visit retiringcanada.ca. While you're there, be sure to sign up for my weekly Retiring Canada newsletter. If you’ve been enjoying the podcast, please consider leaving a 5-star review.
And remember, when it comes to your retirement, don’t take chances.
Make a plan so YOU can retire with confidence.
LINKS:
DISCLAIMER: “MyMoneyCoach" is a free financial planning service that allows users to develop a snapshot financial plan through a series of questions. Our advisors can use this financial snapshot as one of many tools to build your financial plan, however it is not to be considered a substitute for consultation with professional accounting, tax, legal or other professional advisors. Fundamental Wealth and Harbourfront Wealth Management inc. are in no way partnered with MyMoneyCoach. Information is provided to MyMoneyCoach with client discretion and may be used by MyMoneyCoach subject to their own terms of service and company policies.
All comments are of a general nature and should not be relied upon as individual advice. The views and opinions expressed in this commentary may not necessarily reflect those of Harbourfront Wealth Management. While every attempt is made to ensure accuracy, facts and figures are not guaranteed, the content is not intended to be a substitute for professional investing or tax advice. Please seek advice from your accountant regarding anything raised in the content of the podcast regarding your Individual tax situation. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.