The goals in maintaining a budget are to have your net income exceed the sum of your monthly expenses, and increase your savings. It is important to review your income and expenses each month, where you will also have an opportunity to re-evaluate what you're spending your money on.
To budget effectively, collect all your receipts and bank statements from the previous month, and add up the amount of money you spent on the following items (where applicable):
- Housing (mortgage/rent, property taxes, insurance, heat, hydro, water, property maintenance, condo fees, home phone, cell phone, cable, internet, etc.)
- Food (groceries, restaurants)
- Clothing (purchases, cleaning, repairs)
- Transportation (loan/lease payments, insurance, plates, fuel, parking, maintenance, etc.)
- Household Expenses (property improvements or purchases, cleaning/help, pets and pet care, etc.)
- Personal Care (medical, dental, vision, etc.)
- Personal Insurance (life insurance, disability insurance, health insurance, etc.)
- Loan Payments (credit cards, lines of credit, investment loans, student loans, etc.)
- Capital Accumulation (emergency fund, education fund, retirement, etc.)
- Lifestyle/Miscellaneous (donations, personal gifts, regular vacations, entertainment, recreation, subscriptions, cigarettes/alcohol, personal allowance, club memberships, lotteries, etc.)
Once finished, it will become clear that you are spending more than you are making, or vice versa.
Next, ask yourself questions like:
"Is there a membership or subscription I am not using anymore that I can cancel?"
"Are groceries cheaper at another store in town?"
"Can I get a cheaper insurance policy that offers similar coverage?"
"Is there someone from work I could carpool with to save on gas?"
Questions like these can lead to more savings, and the more you save, the more you can invest.
Budgeting can also help you determine approximately how much money you will have in any number of weeks/months/years if your spending habits stay the same. Remember, inflation will have an effect on the value of your net worth over time.
Ultimately, the earlier you adopt a budget-conscious mindset, the better off you'll be in the long run. Here is a useful budgeting worksheet to help you get (and stay) on top of your spending.
To ensure you are on the right track with your finances overall, book a free consultation today.