A budget doesn’t have to be complicated to be effective. In fact, creating a
budget is really quite simple:
| 1) | Write down
your personal and financial goals.
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| 2) |
List all your income sources. Include everything, from your
paycheque to your investment income.
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| 3) |
Record everything you spend in a month. Remembering the big expenses, like rent
and car payments, is easy. It’s the little day-to-day expenses, like your daily
newspaper and morning coffee, that you may overlook. If you use credit or debit
cards, most of your spending is tracked electronically, so go through your
records to see where your money is going. Keep track of your cash purchases by
writing them down in a small notebook for a few weeks. You’ll be surprised at
how quickly it all adds up.
It may be helpful to organize your list of expenses into two separate
categories: fixed expenses, such as housing, food, hydro; and discretionary
expenses, such as entertainment, gifts, vacations, etc.
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| 4) |
Analyze your spending habits. Do you have any money left at the end of the
month? Are you paying off your debts? Are you carrying high-interest balances on
your credit cards? Are you setting money aside for retirement or your child’s
education? Be honest with yourself and face the reality of your financial
situation – don’t ignore those bad spending habits any longer! To get ahead, you
have to spend less than you earn.
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| 5) |
Adjust your spending to match your goals. If you’re spending more than you’re
earning, or don’t have enough money to meet your goals, it may be time to trim
your expenses.
Cutting back is always a challenge but you may be able to improve your financial
outlook without major lifestyle changes. Look closely at your spending,
especially at your impulse buys and daily indulgences. Just by cutting back on
these unnecessary little expenses, you can make a big difference in your budget.
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| 6) |
Reduce your debt. Start by paying off high-interest credit card debt. If you
have several credit cards, keep the one with the lowest interest rate and cancel
the rest of them. If you have a multitude of loans and payments, consolidate
them into a single, low-interest loan. You should also talk to your lender about
paying off your mortgage faster – you’ll save thousands of dollars in interest.
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| 7) |
Pay yourself first. Get into the saving habit by putting a small percentage of
every paycheque into a savings account or RRSP. You don’t have to save a lot,
especially if you still have big debts to pay, but even putting a small amount
away on a regular basis will add up over your lifetime. Some employers will set
up automatic payroll deductions to help you save for an RRSP. Or you can arrange
for your bank to transfer a pre-set amount into your savings account on a
regular basis. Automatic saving is the most convenient and painless way to put
money aside for retirement or a special purchase.
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| 8) |
Build an emergency fund. You never know when an unexpected expense or crisis
will come along. Having some savings in an emergency fund will help you manage
during difficult times.
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| 9) |
Review your budget regularly – at least once or twice a year. As your financial
situation changes, update your budget and adjust your spending accordingly.
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| 10) |
Reward yourself with something special (but not too expensive!) when your budget
works out!
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