Now that you have completed Task #1: Taking Control of your Money by tracking expenses, you know have an understanding of where your money is being spent and are ready to set yourself up with a budget that will lead you into financial success. A budget is the next step towards your success in taking control of your money and finances.
Why do I need a budget?
A budget allows you to determine exactly how much money you and your spouse brings in (income) and exactly where your money is going every month (expenses). A budget determines exactly how much you are able to spend in each category in order to stay in the black and live within your means. By staying on budget you will be able to not only avoid going into debt but if you budget correctly you will be able to save money or pay down some already existing debt. A budget allows you to see where your money is going, so you can determine where you are overspending and spending frivolously. A budget allows you to have a plan for the flow of money every month, and to be realistic!
- If you are on a fluctuating budget like mine as a supply teacher, figure out the average amount of your income based on a couple months rather than relying on the highest income you have made.
- If you are married then remember to combine income and debts into a figure that represents the household as when you get married, you also marry your spouse’s debt (ex.school loans)
What amount should we be spending on each category in our budget?
These are suggested percentages, and you can adjust based on your financial situation, however everything must add up to 100%. Percentages are based upon your net income. For example if your net income is $5000, then your housing budget should not be more than $1750.
- 35% HOUSING (mortgage/taxes, rent, home insurance, utilities: hydro, water, gas, and maintenance)
- 15 % TRANSPORTATION (car payments, gas, parking, repairs, insurance, transit pass)
- 15% DEBT REPAYMENT
- 10% SAVINGS
- 15% FOOD
- 10% LIFE (entertainment, medical, other)
How do I create a budget?
Now I moved out of my parents house when I was 18 years old and moved away to university with a huge sense of freedom, and was excited to become an adult. Little did I know, I lacked some very major adulting skills such as budgeting… now I didn’t figure it out right away but over my 20s I have tried multiple different ways and programs to budget but it took me awhile to find one I like. For a couple years I tried paper and pencil budgeting and had a budget binder which I kept under the coffee table and constantly updated however I started to find it hard to keep up as when I was spending money I wasn’t at home and would often forget to write down what I spent. Fast forward to Jan 2018, I was introduced to a program called Every Dollar by Financially Fit.
Now Every Dollar is an awesome program that can be used as an app, or online on your computer. If your interested in downloading this FREE program you can find it here.
Now the goal of your budget is to create a plan that works for your family and your life, while ensuring you aren’t spending more than your income! Creating a budget puts you in the driver seat of your financial future and can be created in only 10 minutes!
Task #2: Creating a Budget for Your Personal Situation using EveryDollar
Step #1: Input your Income to determine your Total Monthly Budget
Make sure you include all income in your household, including any government cheques such as Child Care Benefit, Generalized Sales Tax Rebate, Harmonized Sales Tax Rebate, etc.
Step #2: Input your expenses under all of the Categories
Make sure your total expenses are not greater than your total income, and try and follow the guideline percentages that were suggested above – they are very helpful. If you are in debt, you are going to choose to reallocate the savings percentage towards debt repayment, at least for the time being. If you need more information on the breakdown of percentages check out EveryDollar Percentages.
Step #3: Input All Purchases
When you make a purchase it is simple to just open the app and log the purchase you are making and what category the money is coming from, and the app will then calculate how much money you have left in that category as well as your monthly budget. Maybe you don’t like filling in the information after each purchase, there is an option on the app to set a notification to remind you to track transactions once a week.
Step #4: Reflect at the End of the Month
Questions to consider:
- Was every category in the black still at either $0.00 or you had money remaining? Congratulations, you successfully stayed on budget this month.
- Were some categories in the negative (red) but you stayed within your overall budget? You succeeded in staying on task but may want to re-adjust the amount in each category based on your individual spending.
- Was every category in the negative (red) and your overall balance was also negative (red)? Time to go back to the budget and re-adjust and determine where you can either increase your income or decrease your spending. When budget it is all about sacrifices and where something is a NEED or a WANT!
Key things to remember:
- Budgeting takes practice and changes won’t just happen overnight!
- Commitment and consistency are keys to success!
- Make sure you include your four basic necessities first: food, shelter, transportation and basic clothing.
You may be interested in the Envelope System.
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Back to the Basics: Step #1: Taking Control of Your Money