It’s November, which means, here in Canada, its financial literacy month. Financial literacy is important and we at Doug Lee & Associates have a great post here for you on how to create a budget in six easy steps. After all, what could make you feel more on top of your finances than nailing down a great budget to follow every month? So here our 6 easy steps to a great budget!
- Note your net income. The budget won’t work if you don’t know how much money you have coming in. Make sure you use your net income (the amount of income you have after deductions). This will ensure you are not overestimating the amount coming in.
- Track your spending. Begin by listing your fixed expenses (regular monthly bills like rent/mortgage, utilities, phones, car payments, insurance etc.). These expenses are generally harder to reduce, but it’s important to know where your money is going. Next list your variable expenses (things that change month to month, like groceries, gas, and entertainment/recreation). These expenses you have more control over and can likely cut back easier in this area.
**Protip** You can track your spending easily with a pen and paper; however, there are many apps available now that can help you track your spending (like Mint), which are much more visual. These apps have handy visual interfaces and are fully customizable, so you can easily see where your money is going.
- Set your goals. Your goals can be short term or long term. Short term goals should take no longer than one year, while long term goals can take many years (think retirement or your child’s education fund). These don’t have to be set in stone, but it should give you clear motivation as to why you are saving your money.
- Plan it out. Now that you are aware of your cash flow situation (how much money you have coming in vs. how much money you are spending), you can create a plan to achieve your goals. Use your fixed and variable expenses to see where you can save money. Rent money each month isn’t going to change, you will need that to be accounted for always, but maybe you are spending a lot on cable, and Netflix could be a way to still have entertainment while saving money. Wants vs. needs are important to note here and sometimes tough decisions need to be made.
- Adjust your habits if necessary. This is where those tough decisions are even more important and we really see what a want vs. a need is. If you go through your budget and you still aren’t bringing in enough to achieve your goals, you will need to adjust your spending. Start with your wants. Movie night at home instead of the theatre, or having friends over instead of going out might be ways you can save a few bucks each month. If you still need to find more savings, look at your needs as well. You may need internet at home, but perhaps you can use a slower speed or a cheaper provider. It’s important to remember that small savings can add up over time, so don’t overlook these savings! amazing how saving a little here and there can add up.
- Keep checking in. The only way this fantastic budget you have created will work is if you stick to it, and the only way to make sure you are sticking to it is to monitor it. This will ensure you spend as much as you planned, and your savings goals are mostly likely to be achieved. Your budget is not set in stone (you may get a raise, find your expenses have gone up, or reached your savings goal). By checking in constantly, you will be aware of exactly where you stand, and can adjust as needed. All you need to do is continuously check in and use the steps above.
A budget is great way to track your spending and alleviate stress in your house. After all, it’s easier to relax and sleep at night if you know you are financially secure. Financial security is in your hands, and there are many apps out there that can help you track your spending. Tracking your spending is the key to any good budget, so whatever method works best for you is great.
Financial literacy month is a great time to learn new tips and tricks for your finances, or just expand on your financial knowledge. Although talking about finances is not common, that doesn’t mean we can’t start. Talk to your friends and family about how they stick to their budget as well. Tell us here how you save your money, and what your favourite budgeting apps are, we’d love to hear it. After all, the more ways we can all learn to save our money, the better!
Author: Adam Lee