It All Starts with a Budget

By: Bruce Luebke, Communications and Content Coordinator

According to the 2014 Canadian Financial Capability Survey less than half (46%) of all Canadians budget.

Knowing how to track expenses and budget effectively are essentials skills that enable people to live within their means and to feel in control of their finances. A personal budget is an important tool to reach financial goals, enabling people to be better able to adapt to changing conditions and absorb periods of financial stress.

Budgeting is more about awareness than anything else. Once you have an understanding of where your money is going each month, you can design a budget that allows you to truly enjoy your money and reduce your financial worries.

And, statistics show that once you have a budget, you stick to it most of the time.

So, getting started would seem to be the biggest hurdle most people need to overcome. Here are some suggestions on how you can start.

The first step is finding out where your money is going. It’s recommended that you spend at least two months tracking your expenses. You can track your expenditures in a spreadsheet or a notebook or through a budgeting app on your mobile device. Going back a couple of months on your bank and/or credit card statements may also provide you with a big-picture view, though they may not be as detailed if you can’t recall what certain transactions were. Make sure to remember expenses that are billed quarterly, semi-annually or yearly such as taxes or insurance.

Once you’ve tracked your expenses, it’s time to determine how you want to spend your money moving forward. One suggestion is the 50-30-20 proportional budget system that sees you divide your monthly income into three categories.  The system is explained in the video below.

As outlined in the video, 50% of your income is for your NEEDS, essentials like food, rent and utilities; 30% is earmarked for WANTS, which are non-essential products like trips and entertainment and 20% goes toward SAVINGS, like retirement and debt repayment. Make sure the monthly income amount you are using to determine your spending limits is your take-home pay after taxes and payroll deductions and not the gross amount.

Your budget should meet your NEEDS first, then the WANTS you can afford, and your expenses should be less than or equal to your total income. If your income isn’t enough to cover your expenses, adjust your budget (and your spending) by deciding which expenses can be reduced. This may include sacrificing some of your wants or finding cheaper alternatives for expenses in NEEDS or WANTS. You may want to consider looking for a side gig that could increase your monthly income.

One final thing to strongly consider in your budgeting process is an emergency fund. In fact, it could be a separate category from general savings goals. An emergency fund should be looked at as a way to strengthen your entire budget. Not only will it cover tough situations such as a home or vehicle repair, but it will also save you stress and give you peace of mind.

Saving for an emergency fund can be difficult, but one of the best ways to start is to set mini-goals. Aim for $500 for your emergency fund and, once that is achieved, set a new goal of $1,000. Consider setting weekly or monthly contribution goals to say on top of your savings.

Having a budget means feeling confident about your money. All you have to do is get started.

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