Monday, 19 December 2016

Weekly Column: Budget your money

Budget your money

Here is a question for you: do you know how much money you need, every month, to cover all of your expenses? Do you know exactly how much money you will bring in every month? If you answered yes to both of those questions, there’s a good chance you budget your money. Even if you don’t budget, knowing how much money is coming in and going out is the first step in gaining control of your finances.

Granted, income and expenses can fluctuate month-to-month. Anyone in the oil patch (or agriculture) knows they might be eating chicken one month and feathers the next. Never has that been more true than the last couple years in the local area.

“But it stresses me out,” you might say. “My spouse won’t follow a budget even if I make one,” others complain. “We never get ahead no matter what we try,” is another familiar reason to give up.
But the fact is, working out a budget is the fastest and simplest way to get ahead financially. It allows you to set goals and take real steps towards realizing them. It will point out where money is being lost and give you an opportunity to stop hemorrhaging your hard -earned pay.  

List income, expenses and spending

Track your spending for one month (two or three is even better). Go through statements and use a spreadsheet or online worksheet to keep track of your numbers. A great resource is http://www.gailvazoxlade.com/resources/guide_to_building_budget.html. In those guidelines, find a link to Gail’s interactive budget worksheet and fill it out.

Set savings goals

If you do not have any savings it is paramount that you begin an emergency fund. This is a fund that would cover all of your bills and expenses for 3 to 6 months. As many people found out the hard way when oil crashed, a 6-month emergency fund may not even be enough. Go through your list of expenses and see where you can make cuts until you have an adequate emergency fund.

Now the fun part. List some things you want to work towards. There are three types of goals: short, medium and long-term. In the short-term you may need a new phone or want an ipad. You could price these out (hopefully waiting for a good sale or promotion) and decide how long it will take you to save that much money. Remember, be realistic when setting goals. If you only have a few bucks left over at the end of the month this may take awhile!

A medium-term goal might be saving a down payment for a vehicle or house. The bigger the sum you want to save, the longer it will take. In the long-term, it is also wise to put money aside for retirement and your children’s education.

Overwhelmed yet? Don’t be. Just the simple action of tracking your spending for a month or two will likely expose areas where you can save money. Divert the money into savings rather than letting it run through your fingers. Let’s say you’ve got $100 leftover at the end of the month. After you have your emergency fund topped up, decide how you will divide that $100 between your short, medium and long-term goals. You may be so inspired that you are able to find further places to cut spending, or might find new opportunities to earn more money.

Pay yourself first

If you wait for there to be money leftover, you will never feel there is enough for you to contribute to your savings. Remove the money before you even see it and get used to living off what is leftover. Be realistic, though, and don’t run up your credit cards because you are leaving yourself short of money.

Learn from your budget

Now that you have taken the time to track your spending and list some goals, what is your budget telling you? If your housing is costing you more than 35% of your monthly income, you may need to find a cheaper accommodation or take in a roommate. Likewise, if that second vehicle is unnecessary and the payments are bringing you down, you might want to think about selling it. Following a budget will give you an idea how much you can spend in a month. Once that amount has been spent, it is time to cut back until next month.

Over time, it gets easier to stick to a budget. The urge to spend impulsively gets tamed and looking ahead to your goals becomes as satisfying as the short-term gratification of a shopping spree. Write a budget that works, eliminate unnecessary spending, and get out of debt. It’s a dream that can be your reality if you make the effort and commit to a budget today.


4 comments:

  1. You had me at Budget! We are on the same page - it is so important to budget!

    Pru

    ReplyDelete
  2. That "paying yourself first" is where we've always struggled - figuring out how much we can squirrel away so that we're not left in the red after paying everyone else. I think we're finally making some progress, though there's still a long way to go! Thanks for sharing your tips!

    ReplyDelete
    Replies
    1. Yes, in the past I've been hesitant to set up automatic transfers just in case I can't cover them...then one day I just did it and thought if it becomes an issue I'll stop the automatic payments to savings. Once in awhile I have had to transfer money out of my savings back into chequing so that my automatic payments to myself will clear! But then there are long periods of time where the payments are happening without an issue and some real saving occurs. Inevitably that money gets spent--usually on an emergency. But if I wasn't making those little payments, there wouldn't have been money set aside when we needed it. It's good motivation to keep it up and not touch the balance!

      Good for you that you are making progress--we all have to start somewhere!

      Delete