Budgeting for life events

What to plan for and how to go about doing it.

What happens most often when I say the word “budget”?

It invokes anxiety, anguish or an undesirable, unenthusiastic, tedious amount of energy expended to develop something that you feel won’t be adhered to anyway. First and foremost, it’s time to change the perspective of a budget to a “means to an end”, as opposed to a limitation or “financial diet,” so that any negative association can be reduced or eliminated. 

When it comes to a diet, we often hear that a change in lifestyle is required in order to have long-term success, rather than a temporary limitation of food. Well, the same applies to a budget. Whatever the life events for which you are planning, success will happen if you incorporate budgeting as a tool or as the means to an end,as opposed to a tedious temporary task. It is the journey to achieve your objective. Think of it as Google Maps providing you with the route, or optional routes, to reach your destination. 

If a budget is not yet incorporated into your lifestyle, it’s not a habit that can be integrated overnight. However, it can be done by following a few easy steps.

Life events

Most of us will encounter life events for which a budget will be required. Some of these include:

  • marriage
  • honeymoon or vacation
  • home (purchasing first home, paying off mortgage, purchasing a bigger home)
  • baby (planning for the first or having to suddenly plan for fertility treatments — quite costly)
  • major investment
  • emergencies (job loss, disability, illness, unexpected major repairs)

Formula for success

It’s a lot easier than you think. Before we can talk about incorporating this into your lifestyle so that it will become natural to effectively manage cash flow, we have to take baby steps. Here they are:

What to plan for

  • Define the life events — the few examples provided above, or any other life event that requires an additional, recurring (new lease), significant (car) or material (home) expense.
  • Specify a date or estimate a time period (one year) in which you expect, or would like, each event to occur.
  • Identify everything that that you need/want for each event. A wedding, for example, may require hall rental, caterer, flowers, band, and so on. This is like doing a brainstorming session, where all you need is a pen and paper (or in my case, a computer). Jot down everything you can think of associated with each particular life event. Then call a close friend, spouse, parent (or your friendly accountant) who has either already done this, or is quite budget savvy. Review the list with them to see if they have anything to add or suggest.
  • Estimate the total cost of each life event by attaching a dollar figure to each cost identified above (including a contingency for unexpected costs – typically 5 per cent of total costs). This is your preliminary “budget” or what you’re willing to spend.
  • Identify vendors and request estimates or quotes for the items listed in your budget, which will give you a more accurate budget. This is where you can decide to reduce some costs if they are higher than your preliminary budget or if you’re not willing to pay the estimated/quoted amount.

How to plan for a life event

  • Specify a date or estimate a time period (one year) in which you expect, or would like, each event to occur.
  • Identify everything that that you need/want for each event. A wedding, for example, may require hall rental, caterer, flowers, band, and so on. This is like doing a brainstorming session, where all you need is a pen and paper (or in my case, a computer). Jot down everything you can think of associated with each particular life event. Then call a close friend, spouse, parent (or your friendly accountant) who has either already done this, or is quite budget savvy. Review the list with them to see if they have anything to add or suggest.
  • Estimate the total cost of each life event by attaching a dollar figure to each cost identified above (including a contingency for unexpected costs – typically 5 per cent of total costs). This is your preliminary “budget” or what you’re willing to spend.
  • Identify vendors and request estimates or quotes for the items listed in your budget, which will give you a more accurate budget. This is where you can decide to reduce some costs if they are higher than your preliminary budget or if you’re not willing to pay the estimated/quoted amount.

Take away for today

Budgeting is easier than most people think, and one of the best ways to be financially responsible. Don’t be afraid, anxious, or feel it’s too tedious. It’s simply a tool for effective cash management and helps you to be mindful of your spending habits.

Keep the conversation going

Are you planning for a life event? How are you budgeting for it? Post a comment below.

Disclaimer

The views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.

About the Author

Kathy Lempert, CPA, CGA


Kathy has a strategic and business advisory services consulting practice. Her experience in the aerospace, medical, real estate, pharmaceutical, telecommunications and manufacturing industries includes management of IT software development, treasury back office, development of policies, process and procedures, business process improvement, business plans and budgets. Kathy co-founded a charity in 2014 called Kehilla Montreal Residential Programs, whose mission is to provide a variety of affordable housing solutions that will help break the cycle of poverty. She has also served as a director on various charitable boards, including being treasurer of a large Montreal charity.

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