Budget Doesn’t Have to be a Bad Word!

When you hear the word “budget” what comes to mind?

If you are like most people, you probably think of it as an unpleasant activity that means you have to financially deprive yourself.

This couldn’t be further from the truth!

Your budget isn’t created to make your life miserable; it is simply a guide to help you manage your money.  We all have income and we all have expenses, and without proper allocation of the money, something may fall short.

The purpose of developing a budget is to understand your current financial situation and to create a plan to achieve your financial goals.  Your budget lays the foundation for allocating what portion of your income is required to cover each expense – and it doesn’t have to be complicated.

In fact, budgeting can be simple, and it doesn’t require any special budgeting tools to get started.  Following these five steps will give you the foundation you need to create a budget and gain control over your financial health.

Step 1 – List all sources of monthly income including salary, gifts, bonuses, tax refunds, cost of living increases, dividends, and interest income, etc.

Step 2 – Separate expenses into three categories: fixed (those that remain the same each month-mortgage, rent, car payments, etc.), flexible (those for which you control the amount spent-groceries, electricity/gas, etc.), and discretionary (those that are not necessary for survival-eating out, cell phone, gifts, etc.)

Step 3 – Total all monthly expenses and subtract the total from your total monthly income.

Step 4 – Next, divide your total expenses by the frequency of income or the number of paycheques the household receives each month. (For example: $1,500 in expenses divided by 2 paycheques = $750 needed per paycheque to pay for your expenses.) If the expense total is greater than the income total, you need to decide what steps you can take to reduce your monthly expenses or to earn additional income.  Or, if your income is greater than your expenses, put up to 10% of your total income away in a savings account.

Step 5 – Finally, prioritize your expenses. Are there any flexible or discretionary expenses you can cut to get your budget on track?  Making small changes, like buying non-name groceries at discounted prices or taking a brown bag lunch can give your budget a significant boost. Finding simple savings in your flexible and discretionary expenses can help you avoid living paycheque to paycheque.

Understanding where your finances stand today will help you plan and save for tomorrow. Once you have a better idea of where your income and expenses stand, you can begin to create a plan that reflects your lifestyle and includes allowances for fun and recreation.

If you look at your budget and find that there is little room for savings or the flexibility to make cuts, don’t wait for it to become a problem. A debt consolidation solution, such as a debt management program can consolidate your credit card and unsecure debts into one low monthly payment.  This reduces how much of your income goes to paying off debt each month, which gives you more money to put towards savings. You can contact a credit counselling agency and speak with a trained credit counselor to have them evaluate your debts and provide options on how to improve your financial situation.