There are always a handful of things we all loathe in life, doing our taxes, going to the dentist and of course, when necessary, sitting down and getting a handle on our finances. The latter is essential if you wish to tackle your debts and your desire to begin saving.
A budget is simply an estimate of your expenses versus your revenue during a specific time period. It’s essentially a spending plan that allows you to better strategize your spending and saving habits for both short- and long-term goals.
How to get started and why:
It’s not a monumental task. Individuals often construct monthly budgets by aligning their cash flow within the full scope of their expenses. This entails accounting for various financial commitments such as rent, utility bills, debt repayments, transit fares, groceries, entertainment, and more. A budget serves as a practical instrument facilitating a deeper understanding of expenditure patterns, enabling one to discern where their finances are allocated, determine feasible spending limits, identify areas for cost reduction, and strategize towards financial objectives, such as attaining financial autonomy.
Establishing a budget yields many positive benefits. Not only does it serve as a vital tool for regulating spending, thereby facilitating progress towards objectives such as debt reduction or homeownership, but it also furnishes clarity on your financial capacities. By illustrating what can be allocated towards expenses like rent, mortgage payments, or car loans. A budget safeguards against excessive debt accumulation and mitigates potential financial strain. Moreover, even in the absence of defined savings targets, maintaining a budget is prudent, as it provides insight into the precise allocation of funds, fostering financial awareness and responsible money management.
How to make the plan:
- Determine your net income. This is the amount of money you bring home every month after taxes and costs like EIand CPP are deducted.
- Itemize your “FIXED” expenses. Rent, car loans, mortgages, groceries and utility bills
- Itemize your “Variable” expenses. gas for your car(s), eating out, entertainment, credit and debit card amounts (approximate usage)
- Define your goals (short/long) such as buying a house, paying off the car(s), credit card(s)
- Now do the math – Net income less #2 and #3
- REVIEW, REVIEW, REVIEW on a regular basis. Once you get started, this becomes quite easy.
Below is one of the simplest and popular budget templates to get started with:
| The 50/30/20 Budget Rule* | |||
| Monthly After-Tax Income | 4000 | ||
| Needs/Necessities | 2000 | ||
| Variable Expenses (wants) | 1200 | ||
| Savings and Debt Repayment | 800 | ||
*if an individual requires a more sophisticated that provides detailed “line items”, those are available upon request.
Needs are necessities and are the expenses you can’t avoid while the variable side are the “wants” like travel, entertainment, meals out and monthly subscriptions.
During the pandemic, I encountered many individuals either take retirement or begin the retirement planning process. Individuals with children headed off to college or university and want to examine the budgeting needs and impact to their household cash flows can also request more sophisticated calculators to examine what impacts lie ahead. The same applies to pre-retirees or those who have made the transition and want a “plug and play” scenario to work with.
Comprehensive planning that is otherwise available by outside planners is available to any Exponent client at no charge as part of the service(s) we offer along with special outreach services for family members.
In this continuing series, we intend to turn many of the perceived negative hurdles into financial positives for generational Canadians seeking guidance in a post-pandemic world.
To achieve better, you must become better. You can’t keep doing the same things and expect change. Transforming one’s mindset leads to a better and prosperous future.
