Making a Budget Your New Best Friend

Posted by: Krista McDonald on 12/11/2011

A budget can be your best friend. While many view a budget as a constraint, developing and adhering to a personalized budget is liberating. Knowing just where your money is coming from and where it needs to go puts you in control of your finances. Many Canada bankruptcy trustees even agree budgets can help you avoid financial disasters down the road.

Getting Organized

Before you can develop a personal budget, you need a clear picture of your financial situation. Grab a pad of paper and add together all of your income, noting when that income becomes available to you. This total is labeled, “Ins”

 Next, make three columns and label them “fixed bills”, “consumer debt”, and “discretionary expenses”.  Find a column for every outgo you incur during the year. The total of these three columns is labeled, “Outs”.

Keep track of your “ins” and “outs” for a month or two. You will probably need to make a few adjustments as you remember obligations or additional income. Subtract your “outs” from your “ins”; this is your surplus.

With the math is done, it’s time to consider your financial goals. Write these down, too. You might want to pay special attention to goals that help you eliminate your Alberta debt or build your savings balances.

The Audit

Now the fun begins. By taking a close look at the things you spend money on, you can begin to evaluate your spending habits and determine the merit of each line item when held against your financial goals. While there is very little you can do at this point about your fixed bills and consumer debt, there is a lot to be done with discretionary expenses and your surplus.

Developing a Personal Financial Plan

You have determined how much money you have to play with. Exactly how much can you spend to decrease your debt load? What is the minimum amount you would like to save monthly?  Investigate the following opportunities:

• Does your employer offer a matching 401k plan?
• Can you set up auto transfers for bills and savings?
• Is there a coupon or significant sale available for your next purchase?

 

Examine the results of your audit and ask yourself if the things you are spending money on are important enough to justify delaying debt reduction or building a savings account.

Finally, write down your short and long term goals. Plot your course by listing sub goals that will help you achieve your primary goals.

The Budget

Now that your homework is done, you can build your budget. You will already have decided what to do about discretionary spending and surpluses. There are many budget templates available on line or you can just take out your pad again and list line items and totals yourself. Whatever form your personal budget takes, be sure it is easy for you to manipulate and view. A budget is working document and needs to be user friendly.

Budgets do require the exercise of willpower, but that self discipline will pay you terrific dividends.