It All Starts with a Budget

Getting Started with Budgeting: A Simple Guide

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

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

Budgeting is more about awareness than anything else. Once you understand where your money is going each month, you can design a budget to 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.

Step 1: Track Where Your Money Goes

The first step is finding out where your money is going. Spend at least two months tracking your expenses. You can track your expenditures in a spreadsheet, a notebook, or a budgeting app on your mobile device.

Going back a couple of months, your bank and 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.

Step 2: Build Your Budget with the 50-30-20 Rule

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, which divides your monthly income into three categories:

• 50% — NEEDS: Essentials like food, rent, and utilities
• 30% — WANTS: Non-essential products like trips and entertainment
• 20% — SAVINGS: Retirement and debt repayment

Make sure the monthly income amount you're using to determine your spending limits is your take-home pay after taxes and payroll deductions, not your 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 what can be reduced, or look for ways to make additional income.

Don't Forget Your Emergency Fund

One final thing to strongly consider in your budgeting process is an emergency fund. 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 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's achieved, set a new goal of $1,000. Consider setting weekly or monthly contribution goals to stay on top of your savings.

Get Started Today

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