Canada boasts one of the highest gross domestic product (GDP) measures in the world. A GDP reflects the spending capacity of a country’s people. This can be on goods, services, taxes and more. In 2020 alone, Canadians spent over 11% of their income on food. That’s just one of the ongoing expenses you have to manage. Excessive spending drains your finances even if your income is on the upper end of the scale. Minimizing spending is the best way to keep your finances on track. Here are five quick tips on how to do so.
- Track your spending:
Countless apps across Canada provide you the option to track your spending. Some offer monthly spending trackers, while apps like Splitwise offer an expense management solution in case you live with a roommate.
Less spending equals greater savings. This is an obvious statement but it’s difficult to execute. The urge to spend often grows with the sheer number of shiny products and services that are produced today. The cost of living has also shot through the roof with Canada ranking among the costliest countries to live in.
The solution of course is not to go cold turkey on spending money when you step out, but it does make sense to limit how and where you spend to avoid frugal spending.
Frugal spends are those that don’t seem costly but accumulate over time to leave a large hole in your bank account. Downloading a spending or budget app might not necessarily mean that you stop spending entirely, but it will give you a quick overlook of where your money is going and help identify the areas you need to cut down on.
- Categorize your purchases:
Once you identify the multiple expenses that sift through your pocket every month, it becomes easier to categorize your spending. You can do so by organizing your spending, first by inputting all forms of income.
Once you’ve recorded your income, you can now organize your spending into multiple sections, each categorized based on their nature. For example, you can go with household expenses and create subcategories like rent, electricity, groceries, supplies, repairs etc. Another category can be entertainment that considers travel, fuel, snacks, movies, or sporting events.
Another category could be Christmas spending that includes baking, gifts, decor, and lights.
The idea here is not to split your expenses into a million categories, but to create enough categories that reveal patterns of action that can be cut out over time.
- Assign limits:
Once you recognize these patterns, it can be hard to immediately put a stop to them. Behaviour change takes time to happen, especially when you’re used to a particular way of life. Assigning limits to categories allows you to look at cutting down your spending without sacrificing the joys that purchases can bring.
In the case of frugal spends, you can assign a 50% limit on the previous month's expenses. That will reduce the burden that frugal spends cause while still giving you permission to succumb to those ice cream cravings.
The benefit of starting on smaller spends before moving on to larger spends lies on the phenomena of habit-building. A key method in bringing about long-term change is making only small increases in the difficulty of the challenge. It will ensure that you don’t quit your new savings habit before you start. The long-term goal is to reduce spending to such an extent that you don’t feel burdened by finances, living a life that does not involve too many sacrifices.
- Make minor sacrifices:
Minor sacrifices are necessary, but it’s tough to let go of something, especially something we enjoy. Just keep in mind these minor changes can lead to immediate financial stability as well as long-term gains.
You can start identifying items to sacrifice by creating a list of things that:
You don’t need: Perhaps it is a spending habit formed from a long time ago that doesn’t fit your lifestyle now. A prime example is paying for an app subscription you no longer use.
You don’t want, but “have” to: These are things that you don’t want to spend on but feel you must do so. This can be an expensive object like a high-end automobile, like a friend or family member has, or an expensive vacation your family would enjoy.
You don’t want, and don’t have to: You don’t have to throw a birthday bash or attend that poker night when you’re running low on money. These are things low on priority and on necessity. You can be social without footing the bill or gambling your money.
It is important to understand that a sacrifice doesn’t feel like one when you reap some benefits. A sudden drop in your spending means greater spending power for the future. It’s also important to understand the fickle nature of time and the unpredictability that a financial life has.
Your investments may bear fruit in the coming year, or you might get that bonus you’ve been expecting for a while now. The alternative, you might face an emergency that throws you into debt. No matter the scenario, preparation and a sustained approach to earnings vs spending is the ideal way to ensure your finances are on track.
- Increase your income:
While spending is a core part of keeping finances on track, other quickfire ways to ensure finances are:
Increasing income: Finding other sources of making money can reduce the burden of spending. It is wise, however, to do both. Doing both will allow you to prepare better for contingencies and take the stress away from cutting down on your spending.
Invest: Another obvious method to ensure financial stability is to invest your savings. It not only helps secure your financial future but helps secure against unexpected expenses. Your money will also earn interest.
Ultimately, it is vital to constantly track your expenses, and ensure your spending capacity increases over time. This means making smart and economical decisions that underlie the basic principle of finance: earn more, spend less.
Ultimately, financial control is quite like a muscle. The more you exercise it, the stronger it gets. Like with anything, consistency is the key to forming any healthy habit. You must have the discipline to stick to this every day, and every month, until you see the results of your decisions. Build the right framework that allows you to decide quickly and with a clear conscience. This framework is built brick by brick and can be a rewarding process all by itself. You got this!