How to make a budget?
Creating a budget can sometime seem like a daunting task. Now that it is the beginning of a new year it’s a great time to reflect on the previous year and plan for the new year.
SET A REALISTIC GOAL
Why do you want to have a budget? People set budgets for so many reasons. Some of the reasons are to know where their money is going every month, to plan for retirement in the future, to teach their kids about money, or even just for fun. Find a reason that will motivate you the most to stick to your budget. A budget can also be short-term, 1 year, or long-term, 10 years. If you don’t think you can stick to a long-term budget that is ok. You can even break down a budget to per month, week, and even day. Talking to someone about your goals for your budget will help you stay on track. Connect with a family member, a trusted friend or advisor, and have them hold you accountable for your budget.
GATHER ALL FINANCIAL STATEMENTS
Identify your income and expenses from the past year. A good first place to start is your bank statements. If you have a chequing, savings, investing, retirement, or credit card, your bank or other financial institution will have monthly account statements that tell you what money came in and what money went out of each account. If you filed your taxes last year, having your Notice of Assessment, NOA, from the CRA will help you know how much money was earned from work and how much you may have spent on other things such as donations, medical, and school. Having any tax documents from the prior year will help you budget for the coming year. Businesses also get a NOA from the CRA. If you have loans or mortgages you can request a statement that tells you how long you have left to pay off the debt and the amount.
ORGANIZE YOUR INCOME AND EXPENSES
Now it’s time to separate your income from your expenses. Understanding where your money is coming from will help you know if there is a way you can increase your intake.
Add up all your income If you work at a company you will receive a T4 at the end of each year for your taxes. If you run your own business gather together all the invoices and receipts of income for your work. Add up all the money you make in a month and year. This will let you know how much money you have to work with each year.
List your monthly expenses and divide into fixed, variable, needs, and wants The money we spend each day can be broken down into fixed, variable, needs, and wants. Fixed expenses would be something that doesn’t change at all or often with each month or payment. These would be things such as loan payments, rental payment, subscriptions, etc. Variable expense are those costs that change over time, such as groceries, gas, or utilities. To be able to budget more effectively we need to divide those expense into our needs and our wants. We need to pay for loans and rent, but we want to eat out at a nice restaurant. Once we have figured out our wants we can start cutting down on those expenses as needed.
Subtract your expense form your total income Once we have laid out all our income and all our expenses for the month or year we can figure out how much money we have left over. Now is a good time to double check everything to make sure we have the most accurate numbers just so as our budget stays up to date.
PICK YOUR BUDGETING SYTLE
