What are you budgeting for, a family vacation, a bigger home or maybe a shiny new car? In this day and age, “things” are becoming easier to purchase and have. From pens to furniture, we can go shopping and find just about whatever we need (or want!)
It used to be you had cash in your wallet. Once you spent it all, you were done shopping. Credit cards are now allowing consumers to overspend. The danger is happening with the tap of a card or click of a mouse (where you don’t see money leaving your wallet.) You start to lose connection with your bank account balance.
It’s become more convenient to shop online, making it easier to let go of our hard-earned dollars. Online shopping makes “things” easily accessible. Sitting on your couch browsing the internet, you can have items shipped to your front door.
Here’re some tips to help you establish a budget and ensure you are not overspending on things you need and want.
Track Your Spending Often
When asking clients what their current monthly expenses are, they’re guessing (and it’s usually low.) Which makes it challenging to complete a proper financial plan. By looking back at monthly spending, you can see how much you need for each budget category and begin to build your budget from your historical spending.
There are many categories to consider. Some of the common ones are income, housing costs, vehicle expenses, groceries, utilities, insurance, debt reduction, entertainment, clothing, pets and savings (RRSP and TFSA, etc.) Each category can be broken down into smaller subcategories, depending on what you would like to track.
Some like to plan out a budget on paper so they can see it, while others use apps to assist with building and maintaining a budget. Some apps can link to your bank account, so tracking your money is simplified.
Tweak Your Budget
Until the budget has been working for a few months, it will need to be tweaked. Each month or year may require different financial needs, so don’t be afraid to adjust as time goes on. Don’t hand-cuff yourself when needing to spend money outside of the budget. If the budget numbers need to be adjusted, do so for the next month.
It’s a good idea to look at your annual finances and break them down into a monthly budget. There are different financial needs throughout the year. For example, December often means additional gifts or entertaining costs, and summer may mean lower utility bills, but increased travel expenses. Spread out extra costs throughout the year, so you’re able to stick to your budget.
Make sure you include “Fun Money” in a budget. If you don’t have room for fun or unexpected opportunities to enjoy an evening out, budgeting can get tiresome and frustrating.
More importantly, start a “reserve fund” or budget some money to build up a reserve fund. When unexpected expenses show up, you will want a budget to deal with them. If not, it will cause you to add debt. These expenses can include medical bills or unexpected vehicle repair. If you have a reserve fund, these costs don’t seem like such an emergency anymore!
Include the Future
Remember to include things that you’re working towards, paying off debt, saving for your wedding or a home down payment. If planning for a new home, it’s a good idea to start including an anticipated mortgage payment towards your down payment budget. If you can’t save the anticipated mortgage payment, you may want to reconsider your new home budget. To establish what you can afford to purchase, talk to your mortgage broker about starting a mortgage pre-approval.
Understand Your Income
Most people think they make more than they do. You have to understand your income accurately when building a budget. Start by including salary, bonuses, child benefits, income tax returns, etc.
Some will understand and enjoy budgeting, while our spouse may find the budget boring and controlling. It doesn’t happen overnight. It may take months before your budget looks and feels right, so don’t get frustrated or quit. Budgeting is a tool to give you the freedom to purchase things you need and want. It takes the guesswork out of your financial situation.
This article is provided by Dan with Dan Houcher Financial. Dan is an independent insurance broker and certified financial planner who shows his clients options for insurance and investments. Don’t hesitate to reach out and contact Dan at firstname.lastname@example.org or 780-963-8945 for more information. Check out all the services he offers at https://www.danhoucher.com/.