When it comes to effectively managing your finances, it is important to create a budget. With a proper budget, you can work your way back from the brink of financial ruin, or avoid money problems in the first place. Everyone has heard of the concept of budgeting, yet so few really know what it entails.
What is a budget?
Simply put, a budget keeps track of how much money is coming in and compares it to how much money is going out. It is a system to ensure you don’t spend more than you make on a consistent basis. Many people encounter this type of philosophy when they want to lose weight. There are lots of different methods and tricks, but in the end, it’s a matter of calories in versus calories out. Of course, in weight loss, you want more going out than coming in, but the principle is the same.
And since the end result is really just comparing what you make against what you spend, that’s exactly where you should start. Get yourself a notebook and pen, or open up a blank document on your computer or mobile device, to record your spending.
Track your monthly expenses
To identify how much you’re spending, you’re going to have to track your expenses. Write down everything you spend for an entire month. You can put each expense into categories to make it easier if you like. List each expense under headings like ‘household bills’, ‘groceries’, ‘rent’ or ‘mortgage’, ‘entertainment’ and ‘transportation’. Make as many headings as you need, and try not to get too upset if you miss one or two or can’t categorize some expenses.
As you go along throughout the month, it will probably become plain to see where the bulk of the problems lie, but keep going forward with the plan. Try not to intentionally hold back on any expenditure you know you’d make anyway just for the sake of the experiment. It’s important to have as accurate a picture as possible when you’re finished.
Tally your expenses
After the month is up, go through your list and add up your totals. Compare your total expenses to your income for the month. If your income is higher than what you spent, then you’re doing all right. If it seems a little lopsided, it’s time to identify where you can cut back. Look through your expenses to find ones that you can shave a little off each month. Everybody has them! A loonie here and a loonie there can add up fast over the course of a whole month. Check out our tips on how to save money on everyday expenses.
These are usually “wants” as opposed to “needs” and it may be tough to get rid of some of them, but you’ll appreciate it in the end. This list typically includes items like coffee, entertainment or clothes. Keep trimming from your list of “wants” or “extras” until the money coming in is greater than what is going out each month. Once you have a workable plan set up, get it down on paper or on your computer and start keeping records every month.
Don’t forget to save
A lot of times people forget to “pay themselves first”, meaning that at the end of the month after they’ve paid all their bills and expenses, there’s no money left over. You don’t want to be in this situation. Within your monthly budget, you should have a category for savings. Aim to put away at least 10 per cent of your income. Find out how to budget and save at the same time.
What to do if your budget is unbalanced
If you can’t seem to make the numbers work no matter how much you trim from the expense list, consider talking to a professional to help you out. A credit counsellor can help you make sense of it all and steer you toward a solution that works best for your lifestyle. There is often a solution that you haven’t considered that doesn’t include the ‘b’ word (budget) in any way. Once you have it all sorted out and you are officially bringing in more than you are spending, you have to stick to the plan. It’s ok to make adjustments from time to time if things seem to be getting out of balance, but if all is well, just stick to your budget and everything will turn around.
If you want to speak to one of our certified credit counsellors, contact us today for a confidential appointment. We have seven locations across Atlantic Canada including Moncton, Fredericton, Saint John, Dartmouth, Sydney, Charlottetown and St. John’s.