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11 Steps to Afford Your First Home and Beyond! Series: Part 5 of 11

Updated: Mar 20, 2022

Overview and Tips on Getting Pre-approved for a Mortgage

 

My goal is to help you realize your dream of owning a home! This is a decision that requires a lot of research and insight, and I am here to provide you with the right tools to succeed.


This is Part 5 of a 11 part series that I will share with you weekly. If you want to read the previous step, please click here.

 

5. Budgeting Continued


Last time we talked about budgeting and how to audit your personal finances to figure out where your money is going. Today, we’ll cover a couple of budgeting methods to put you back in control of your personal finances. While budgeting may sound boring and restrictive, it’s actually a tool that sets people free. By tracking and budgeting your expenses, you're not just limiting and controlling the good times. You're actively deciding how you want to spend your money so you can determine your financial future. Done properly budgeting allows you to put your money to work for you, so you don’t have to work as hard in the future.


Budget Method #1: EveryDollar App


Now that we have an idea how to identify our expenses and figure out where we can cut back, it’s time to put this saving plan into action. The first budget method you can try out is using a budgeting application to track all of your expenses. There are a variety of options that you can use. One that I’ve personally used before and found very helpful is the EveryDollar app. As the name reads, you can use it to track every monthly expense. The EveryDollar app allows you to set up and automatically track regular recurring expenses like rent and utilities. It also allows you to create budget categories to manually track miscellaneous and sporadic expenses manually. So, for example if our buyers are planning to cut their restaurant and entertainment budget in half down to $675 each month, they can create a restaurant and entertainment category and add these expenses each time they spend money on restaurants or entertainment. Then if our buyers are coming up to their $675 limit part way through the month, they will know to stop spending in this area, or slow down so they have some restaurant and entertainment funds left for an upcoming event at the end of the month. EveryDollar is a web application, so it’s easy to log into and add expenses right from your phone, and you can share the account with your Spouse so you can track expenses together. One of my favourite categories to use was our personal “MAD Money” categories, a no rules budget we each gave to ourselves to spend on whatever we wanted to. The best part about the EveryDollar App is that it has a free version that covers everything you need to better budget and save money. That being said, there are numerous budgeting applications out there, so just pick the one that works for you and start tracking your expenses so you can keep more of your money.


Budget Method #2: Cash Envelope method


The second method is just like it sounds. Figure out how much you want to spend on each budget category and put it in a paper envelope at the start of each month. Although it accomplishes roughly the same thing, the cash envelope method is simpler for those who don’t want to bother with using applications, memorising passwords, or manually entering receipts and expenses. Just simply figure out how much you want to spend each month for each expense category and put it in an envelope. With our future home buyers, they have taken out cash for each of their miscellaneous expenses including $675 in an envelope labelled restaurants and entertainment. The next time they want to go out for dinner, grab a movie or go to a concert they take some cash from the envelope and spend it at will. One strength of the cash envelope method is that it helps you to control your expenses if you have a hard time tracking expenses, or you’re a bit of an emotional spender. With the cash envelope method, once the money's gone it’s gone, and you have to wait until next month to spend it again. On the other hand, a limitation of the cash envelope method is that it can be a bit clunky for expenses that require a credit card like hotels, online purchases, or travel flights. It’s still manageable, but may introduce a bit of redundancy if you are putting money in an envelope for Amazon purchases, just so you can return to the bank to make a deposit before using your credit card.


Final Thoughts on budgeting


Whatever method you choose, once you get started the main thing is to set aside money each month. This could be taking a percentage of every paycheck and adding it to your long term savings account as the first thing you do. It could also be figuring out how much you need to spend in a regular month, and then topping up your checking account from your savings on a monthly basis. This is my personal favourite approach once you know your expenses and savings goal, as it eliminates a lot of the busy work of manually tracking each purchase. It also forces us to be mindful of our expenses as I’ll be facing an overdraft penalty if we go over. The best part is that we typically underspend our budget each month allowing us to often exceed our monthly savings goal. And on the off month where we have some bigger or unforeseen expenses, we can always top up our checking account budget to cover the difference.


Whatever approach you take, the main thing to keep in mind is that having a budget isn’t just restrictive, it can actually be very liberating. What do I mean by that? Well, we are all going to spend money one way or another, the only difference is that without a budget you’re not aware of where your money is going and you lose control of how it’s spent. However, by introducing a budget, you’re giving yourself knowledge and control of where your money is going. This opens up an opportunity to shape your destiny by putting your money to work for you. In this case, by investing in a home that can bring years of appreciation and equity to help build your financial future.



Stay tuned for part 6!


 

I am a Victoria based local realtor with eXp Kiteke. My commitment to honesty, integrity, loyalty and hard work have been important pillars for me because they drive a high standard of excellent service for my clients. Helping you realize your dream is my goal!


I service Vancouver Island, but my focus is on: Victoria, Sooke, Saanich, Malahat, Shawnigan Lake, Cobble Hill, Duncan, and the rest of the Cowichan Valley.



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