How to budget

Have you ever gone to the ATM machine and taken out cash, then before you realize,  it’s all gone and you’re left scratching your head as to where it all went?  It’s time to get in touch with your money and that starts with creating a budget.

Okay, it may not be the most exciting thing for you to do, but it’s an important tool to get control of your finances. It starts by getting real about how much money is going out (expenses) and how much money is coming in (income).

Start by setting up a template with categorized items on it – these items should fit your personal situation, not someone else’s. You can easily find sample budgets online. Expenses are divided into two categories: fixed and variable. Fixed are those expenses that stay relatively the same each month and form part of your cost of living. These items include rent/mortgage, car payments, utility payments, credit card payments, etc. Variable expenses are those that vary month-to-month and include items such as groceries, gasoline, entertainment, etc.

Income includes all the money that comes in, whether from employment, pensions, rental income, interest income, etc.

Now gather as much financial information as possible. Dig out bank statements, credit card statements – all the paperwork from the previous year. If you don’t keep these documents, it’s a good time to start.

Now total your monthly income and monthly expenses. If at the end you have more income than expenses, you’re on the right track. However, if your expenses are higher then you need to make some changes. Once you start this process, it’s best to review these numbers monthly. It’s also a good idea to get into the habit of keeping all the receipts for everything you purchase – even if it’s $3 at the corner store. Cash spending is the biggest leak in most budgets. Cash disappears quickly.  If you write down everything you spend it on, you will be surprised at how much you actually spend on miscellaneous items.

Once you start tracking your spending, you will start to recognize spending patterns and adjust them. You can also get help in creating a budget through your local credit counselling centres.

This exercise is not meant to make you feel bad about yourself but instead it will give you a meaningful picture of where your money goes and where you can cut costs.

Your budget is a dynamic document to be used as a tool. It will change as you change.  It can help you manage your money as well as plan for future expenses. Once you have it, you’ll be surprised at how easy it is to work with, although it will take some discipline as you get started.  You will be in control of your money rather than the money controlling you.  And that’s a positive thing.


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