How to create a budget
In order to control your finances, the best way to cope is by budgeting. For many people, the word budget has a negative connotation, but instead of thinking of a budget as financial handcuffs, view it as a means to achieve financial success.
"Budgeting is really a means to an end." Consumers need to make categories for each expense, for example, electricity, water, food, cable, and keep track of what they are spending and contain their monthly expenditure," says Adrian Reynolds, assistant vice-president of wealth management at Capital and Credit Securities Limited.
Here are some important budgeting tips
1 Set Goals - Your goals are what will motivate you to stay on track with your spending plan. Without goals, you may find yourself living pay cheque to pay cheque and never saving for the things you really want. It is important that you save five-10 per cent of your net income for your goals.
2 Gather every financial statement you can - This includes bank statements, investment accounts, recent utility bills and any information regarding a source of income or expense. The key to this is to create a monthly average. The more information you get, the better.
3 Record all of your sources of income - If you are self-employed or have any outside sources of income, be sure to record these as well. If your income is in the form of a regular pay cheque where taxes are automatically deducted, using the net income, or take-home pay amount is fine. Record this total income as a monthly amount.
4 Create a list of monthly expenses - Write down a list of all the expected expenses you plan on incurring over the course of a month. This includes mortgage payments, car payments, auto insurance, groceries, utilities, entertainment, retirement and essentially everything you spend money on. Plan ahead for large expenses and comparison-shopping and spend no more than 10-15 per cent of your net income in credit payments.
5 Break expenses into two categories: fixed and variable - Fixed expenses are those that stay relatively the same each month and are required parts of your way of living. They include expenses such as your mortgage or rent, car payments, cable and or Internet service, credit-card payments and so on. These expenses, for the most part, are essential yet not likely to change in the budget. Variable expenses are the type that will change from month to month and include items such as groceries, gasolene, entertainment, eating out and gifts, to name a few. This category will be important when making adjustments.
6 Total your monthly income and monthly expenses - If your end result shows more income than expenses, you are off to a good start. This means you can transfer this surplus to areas of your budget such as retirement savings or paying more on credit cards to eliminate that debt faster. If you are showing a higher expense column than income, it means some changes will have to be made.