Looking for a sure fire way to get your finances in order so that you can go on a big trip, buy a new car, or just make it to the end of the month with a few dollars left? The use of a family budget is the number one way to help keep spending in check, and set us up for those great dreams we have for our money. Building a budget isn’t hard and it only takes about 30 minutes of your time.
Your income represents the foundation of your budget. When looking at income be sure to include all sources of income for the family (wages, child tax, pensions, Trillium, HST, support, etc.).Be sure to use after tax dollars to get a sense of what your monthly income is.
Once you know your average family income after tax you start thinking about your expenses.
We all have three types of expenses. Our “bills” or those expenses that are basically the same amount each month (mortgage, car payment, insurance, electricity, etc). These are the expenses most of us know offhand. The next group of expenses will require a bit more work.
Variable expenses are things we buy each month, but the value of those things changes from month to month. For example, one month we may spend $130.00 on gas for the car but the next month only $110.00. For these variable expenses we need to use some form of tracking system whether it is pen and paper, saving receipts, or any of the great tracking apps available for smartphones. By tracking, you will get a good sense of where you are spending your money. The thing with variable expenses is that with the exception of groceries, we don’t really need to spend on these items, however, they typically amount to the largest part of our budgetary expense.
The last type of expense only happens a few times a year at most. These are irregular expenses. The best example would be Christmas gifts, or Car repairs. These are big ticket items that are inevitable, but we usually don’t save nearly enough to cover them, so we use credit. These are hard to budget for but think back to last year. What did you spend in gifts, for all people, and all occasions? Take this number and divide by twelve. This is what you need to be saving each month to ensure that you can cover these expenses in cash instead of relying on credit. You can do the same for car repairs, vet bills, or home maintenance.
Adding up the total of all your expenses and subtracting that amount from you income will tell you if you are over spending each month. If you run a deficit there are three ways to fix it. Spend less. Earn more. Or do both.
When cutting back, first focus on your irregular and variable expenses. The trick is really to not cut things out but rather cut back. Instead of buying a $2.00 coffee every day you can buy one every other day and save $356.00 each year.
Once your budget balances you have to actually live your budget.
Living your budget
This is the hardest part of budgeting, but if you don’t work at living within your budget the process was all for naught. Keeping a daily spending log will help you stay within budget and it will also help you recognize areas to adjust your budget. You can always spend less in one budget area and reallocate that money somewhere else. The trick is you can’t increase spending to something if you don’t equally spend less somewhere else.
Budgets are living documents. As your life changes your budget has to change as well. An increase in income allows you to spend more in different areas, but a decrease in income means you will likely have to cut back across all areas to make your budget balance at the end of the month.
Budgets are an important financial tool that can help you get what you want, a trip, pay down debt, build savings, or that piece of tech you have had your eye on. If you need help setting a budget and thinking through your expenses you should contact a professional credit counsellor who is well versed in building budgets and offering you tips and strategies to stick to it. Call Credit Counselling Service Sault Ste. Marie at (705) 254-1424 to set up a free appointment.