Sustainable Spending: Create a Budget that Works Long-Term

When it comes to managing your finances, budgeting isn’t just a quick fix. It’s not meant to only be used for a few months to pay off bills when money is tight. Instead of viewing it as a short-term solution, think of budgeting as a way to build a secure future.

At Credit Canada, we teach a method for budgeting that aims to build financial stability not just now, but for years to come. It’s called sustainable spending and the goal is to create a system that helps you avoid debt and manage your cash flow effectively over time. 

Not to be confused with eco-conscious spending, sustainable spending is our unique approach to budgeting that ensures long-term financial health. It’s the foundation of Credit Canada GOLD, our innovative financial coaching program that leverages behavioural science to help you get out of debt and back into life. Read on to learn how sustainable spending can help you create a budget that works long-term.

What is Sustainable Spending?

Budgeting can be difficult and intimidating for many people. Sustainable spending offers a more approachable way to budget, specifically for those who struggle to stick to one. Instead of tracking every penny, sustainable spending is about looking at income and expenses and developing a plan that is sustainable over time. This approach gives you a clear picture of your finances, so you can see if your spending aligns with your income and goals.

The sustainable spending approach is simple, and offers stability and flexibility as your income and expenses change over time. It also encourages responsible spending habits, ensuring you’re living within your means and not taking on more debt. 

Benefits of Sustainable Spending for Long-Term Financial Health

Using the sustainable spending method has some major benefits when it comes to your long-term financial health, including:

Reducing Financial Stress

Managing your spending sustainably can reduce financial anxiety. When you follow a budget and make careful spending choices, you’re less likely to face unexpected expenses. This means less stress about how to cover surprise costs because you’re prepared for them.

Improving Savings and Achieving Goals

Sustainable spending can turn saving into an easy part of your financial routine by helping you prioritize your goals. Having a clear budget makes it more manageable to allocate funds for both immediate needs and long-term goals so you can save for what’s most important to you, like retirement or a vacation.

Avoiding Debt Cycles

Careful spending is crucial for avoiding debt. When you budget wisely and save up for purchases, you’re less likely to rely on credit cards or loans. This prevents you from taking on high-interest debt, which could take months or years to pay off. By using a sustainable budget, you stay in control of your spending.

The Sustainable Spending Method

Sustainable spending is all about understanding where your money goes to make sure you're staying within your budget over time. The approach has three phases: Analyze, Brainstorm and Change—or A-B-C. Here’s how it works: 

Analyze: Take a close look at your income and expenses. Understand how much money is coming in and where it’s going out. Then you can see if you need to increase income or decrease your expenses.

Brainstorm: Think about ways to improve your cash flow, and ideas that could help you earn more and spend less. Consider setting goals, like saving for emergencies or paying off debt. 

Change: After you’ve done some analysis and brainstormed some ideas, commit to making positive changes to improve your cash flow. Even small adjustments can lead to big wins over time!

"Sustainable spending is about practice over perfection. Use the A-B-C method to consistently check in with yourself to see if you are living within your means."

Becky Western-Macfadyen, Financial Coaching Manager, Credit Canada 

Practical Steps for Creating a Sustainable Budget

Once you understand the basics of sustainable spending through the Analyze, Brainstorm, and Change method, it’s time to put those principles into action with practical steps. To create a budget that works long-term, you’ll need to:

Assess Your Current Spending

Like many people, you may not know where all your money goes after covering obvious living expenses. We suggest tracking all of your expenses, however, it’s not a requirement for sustainable spending. Try to include expenses you tend to gloss over, or even your vices. We have no judgment. Include smoking, alcohol, and gambling. Tell the truth to yourself.

To assess your current habits, try to track your spending for at least a month (ideally 2-3 months). By doing this, you’ll be able to see where your money goes over time and identify any spending habits that are unsustainable, like impulse buys or overspending on non-essential purchases. Consider writing down what you spend week-to-week in a notebook. This will help you create a detailed spending plan you can follow in the months ahead.

Priority Setting

When it comes to managing your money, multitasking isn’t always best. Many people actually accomplish very little with their budget when they’re trying to do too many things at once. For sustainable spending, it’s important to narrow down your focus to what will make the biggest difference to your finances and reduce stress. You can’t do two things at once—you have to prioritize. Once you tackle one priority, then you can move to the next, and so on. These are the priorities we suggest you work through:

1. Cash flow: Are you earning more than you’re spending?

2. Debt: Have you eliminated all credit card debt?  

3. Savings: Are you regularly contributing your savings?

4. Taxes: Are you taking advantage of tax credit and benefits?

If the answer is yes, go to the next priority until you’ve completed each one. If the answer is no, circle back to the ABCs and brainstorm possible ways to address them. Maybe you need to boost your income or cut expenses. The most fundamental principle of personal finance is that you need to live within your means, over time. Working through these priorities (one at a time) will ensure you have a strong foundation for your financial future.

Build an Emergency Fund

An important part of sustainable spending is saving for emergencies. An emergency fund is money you set aside to pay for unexpected expenses that are usually unforeseen and often urgent, such as medical costs, car repairs, and vet bills. The fund should contain enough money to cover several months’ worth of living costs, depending on your situation.

To build an emergency fund, set aside a fixed amount each month to a dedicated savings account as part of your budget. You can set up automatic monthly transfers with your bank to make this easier. Should you end up using your fund for an emergency, make sure to prioritize replenishing it so you’re prepared again in the future!

Create Clear Financial Goals

Setting financial goals, like repaying debt or saving for retirement, helps align your spending habits with your long-term objectives. When you have clear goals, you know exactly where your money should go, which can make it easier to manage your cash flow. For example, if you're focused on paying off debt, prioritize putting money towards that debt instead of spending on non-essential items.

When establishing financial goals, remember that they need to be SMART—Specific, Measurable, Achievable, Realistic, and Time-bound. These five criteria are important as they help turn your broad aspirations into concrete steps, making it easier to stay motivated.

Use Budgeting Tools

Using an online budgeting tool, an app, or even a simple spreadsheet can help you stick to your spending plan and track your progress towards your financial goals.

There are many online tools and apps that can help you establish a realistic spending plan, including Credit Canada’s free Budget Planner. With this tool, you plug in some basic information, input your expenses, and it does the rest. It will provide a complete breakdown of what you spend your money on each month, and how it compares to your budget. You can also use our all-in-one Expense Tracker to help you estimate your saving needs for both regular and irregular expenses.

Adjust As Your Expenses and Income Change

At the end of each month, come back to compare what you planned to spend with what you actually spent. This will help you keep track of your expenses and make adjustments. Also, remember to review your income regularly, since it may fluctuate as you get raises, change jobs, take on side gigs, etc. 

You’ll want to manage your cash flow so every dollar has a job—whether it’s for paying bills, saving, or investing. So before you think about splurging, take a closer look at your expenses to make sure you're managing your money for the long-term. If you have money left at the end of the month, decide whether you want to add it to your emergency fund, save for a vacation, or contribute to your RRSP or TFSA. Putting money aside now will help make your future goals a reality.

Common Budgeting Pitfalls To Avoid

When building a budget, you’ll need to avoid a few common missteps to ensure your spending plan is sustainable, including: 

Relying on Credit for Everyday Expenses

Relying on credit for everyday expenses can create a cycle of debt that’s hard to escape. One danger is the high-interest rates on credit cards. If you don’t pay off your balance on time and in full, those interest charges can quickly add up, making your purchases more expensive over time. 

Relying on credit also hides cash flow problems. Credit might make it seem like you have extra money, but you’re likely just spending more than you earn. Because of this, it’s best to use credit wisely, pay off your balance in full each month, and stick to a budget where you spend within your means. 

Not Tracking Small Expenses

Not tracking small expenses can easily derail your budget. Little purchases like coffee, snacks, cigarettes, gum, etc. can add up faster than you might think! These expenses might seem inconsequential, but together they can become a significant drain on your finances. While you don’t have to account for every penny, keeping tabs on your expenses will help you live within your means so you can survive without relying on credit. Consider limiting yourself to only using cash for small purchases so you’re more aware of what you’re spending. 

"I learned what my major triggers are for reckless spending and how to recognize patterns before they start. I have always struggled with budgeting and found the sustainable spending plan to be much more approachable."

- Credit Canada GOLD Participant