Upon hearing the word “budget” most people begin to frown. This is not surprising as budgeting can be an overwhelming task for some people, but it does not have to be! Preparing a household budget can be simple and exciting. Do not place added pressure on yourself by detailing every tiny expense; rather focus on creating a plan that is reasonable and easy to follow.
The first step to creating a working budget is to make a list of expenses and categorize them. All of your expenses fall into three basic categories: needs, wants and savings. The “needs” category includes expenses required to survive, such as housing expenses, groceries, clothing, transportation expenses and medical expenses, if applicable.
We should all be putting money into “savings.” Building an emergency fund and retirement savings, although not enjoyable now, will benefit you greatly in the future. It is also important to have a personal short-term financial goal. Whether this is something big such as saving up for an exciting trip or small such as purchasing a new iPod – if you have a goal, you will be more determined to save and you’ll have more incentive to stick with your budgeting plan.
The remainder of your expenses fall into the “wants” category. This includes but is not limited to dining out, entertainment, gifts and discretional insurances.
Once you’ve listed all of your expenses and categorized them into these three basic categories, you will need to balance the budget. Start by determining what your normal monthly take home income is and how much is left after you’ve factored in all of the expenses in your “needs” category. This is how much money you have left over to allocate towards your “wants” and “savings” categories. A common rule of thumb for determining if you are allocating your expenses properly is the 50/30/20 rule. 50% of your income should be spent on your “needs”, 30% on your “wants” and 20% put into “savings”.
Your budget is now ready to be put into practice!
If you are finding that your budget is impossible to balance or that your bills are just too overwhelming, a Licensed Insolvency Trustee can help review the options available to you in order to have a better financial future. Please contact our office for a free initial consultation.
This article has been published for general information. You should always contact your trusted advisor for specific guidance pertaining to your individual needs. This publication is not a substitute for obtaining personalized advice.