A Simple Way to Create a Budget
By Marc Nantel-Legault
Are you wondering where all your money is going? You might think you’re in control of your spending habits, but at the end of the pay cycle, you’re never left with as much as you’d hope. The solution is to create a budget, but even the word can make you cringe. It sounds like a long, grueling chore. But in reality, it’s actually not that difficult.
How to Make a Budget in 5 Steps
A simple way to start making a budget is to gather all the necessary information concerning your revenues, your expenses (regular, irregular and unexpected) as well as your debt repayment obligations. For example, do you know how much you spend on groceries? How about the cost of your mobile phone bill? The more detail you have, the better your budget will be and the easier it will be to make financial decisions.
A great resource is your bank account or credit statements from the past six months. It will be much easier to track your expenses and categorize them correctly for your budget.
Outline Your Income
The best place to start your budget is by listing how much money you have coming in. Take note of your salary, social assistance or unemployment benefits, CSST compensation, pension, annuities, alimony, child tax benefits and GST and Solidarity Tax Credit payments.
It even includes money from investments such as rental property income or dividends from stocks. Generally, all deposits in your bank statement should be examined to determine your income.
Know Your Expenses
Now it’s time to identify your expenses. It can be easy to miss some of them, which then could throw out your whole budget. Try to start with regular payments, the ones that you make every month. Some of the most common might include:
- House payments (mortgage, rent)
- Transport (fuel, public transport)
- Groceries and personal care
- Insurance premiums (house, car, life)
- Utilities (Hydro, phone, internet, cable)
- Day care
- Regular medical expenses (don’t forget to consider reimbursements if any)
- Monthly bank fees
Next, think about the irregular expenses that may not occur every month. Examples of these can include:
- Vehicle and home normal maintenance
- Gifts and donations
- Children extra-curricular activities and sports
- School fees (tuition, textbooks)
Finally, there are unexpected expenses that you should always be prepared for. You can’t know exactly how much or when you will have such expenses but we all have them from time to time. These types of expenses might come out of your emergency fund, which should be assessed based on your specific situation, including whether you have dependents, if you own a vehicle or a property and if you have known health issues.,. Some types of unexpected expenditures might be:
- Vehicle and home repairs
- Broken appliances
- Health related expenses
Although many people still hand write their budget on paper, we recommend using an application of a spreadsheet such as Excel to gather and categorize more efficiently the expenses. Make sure to select a tool that you feel comfortable with and keep using. Once you have gathered the information and prepared your budget it will be easier for you to decide the best course of action to take control of your finances.
Debt repayment obligations
Don’t forget to prepare a list of all your debts and minimum repayment obligations. While analyzing your budget, you may note that you have capacity to repay your debts faster.
Use Tools to Review Your Situation
With today’s technology and tools, it can be much easier to follow and review your budget. There are many apps and online tools to analyse your income and expenses, including the ones available by your financial institution.
Reviewing your budget can help you conclude if you’re spending more money than what is coming in or if you’re in a position to put more money aside for a rainy day. Financial budgeting tools will also help you assess if the project you’re looking to complete is possible in your current situation.
Adjust Your Spending
Now that you’ve got a clearer picture of your revenues and expenses, it’s time to see how you can make adjustments to achieve your financial goals. The ultimate goal should be to pay all of your bills every month and have some extra money left over to add to your savings to reach your financial objectives.
The budget will make you more conscious of your spending habits which could lead to uncovering some unnecessary spending or prompt you to shop around for a better deal on some of your utilities. Whatever it may be, the decisions you make based on your budget will help you get closer to the ultimate goal mentioned above.
Reasons Why You Should Create a Budget
There are several good reasons to sit down and make a budget. It could be that you’re struggling to pay your bills and make debt payments on time. Sometimes it’s for more positive reasons like planning for a property purchase or setting up a registered educational savings plan for a child. Maybe you want to make a budget so you can quit your job and retire as soon as possible.
Whatever the reason may be, a budget can help you get an overview of your finances and assist in making decisions on how to achieve your goals. Some other important reasons to consider creating a budget include:
- To get a better understanding of your expenses
- Find out what you can and can’t afford
- Save for emergencies or unforeseen circumstances
- Set out a plan to reduce your debt level
- Complete important projects
- Reduce stress and anxiety so you can sleep easier
Get Some Independent Advice
It can be hard to cut out expenses, especially if you think they’re all essential. Sometimes you need a neutral party to take a look over your outgoing costs and provide advice on the best way to achieve your financial goals. If you need help making decisions on your budget because of overwhelming debts, book an appointment with us today, and we’ll help set you on the right track.